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S&P cuts Brazil credit rating outlook to negative because of sluggish growth

Friday, June 7th 2013 - 05:43 UTC
Full article 4 comments
Ambiguous economic policy signals, said Sebastian Briozzo from S&P Ambiguous economic policy signals, said Sebastian Briozzo from S&P

Brazil’s credit rating outlook was cut to negative by Standard & Poor’s saying sluggish economic growth and an expansionary fiscal policy could lead to higher government debt levels. Reacting to the announcement a spokesperson from the Finance ministry said “there is no change in economic policy and the environment is conducive to investment”.

S&P reduced the outlook on the government’s BBB rating, which is two levels above junk and in line with Mexico and Colombia, from stable.

The move, which threatens to end a decade-long stretch of rating upgrades for Latin America’s biggest country, was triggered by the outlook for “modest” economic growth, “weaker” fiscal policy and deterioration in the government’s credibility, S&P said in a report.

Brazil’s economy expanded 0.9% last year and is forecast to grow just 2.77% in 2013, according to a central bank survey published June 3. Quickening inflation has prompted policy makers to boost interest rates by 0.75 percentage point this year after they lowered borrowing costs by 5.25 percentage points in cuts that began in August 2011.

S&P forecasts the economy will expand 2.5% this year after growing 0.9% in 2012.

Annual inflation, which was 6.49% in April, has remained above the 4.5% midpoint of Brazil’s target range since central bank president Alexandre Tombini took office in January 2011.

“There was no change in rating, but a review based on growth outlook in 2013,” said Marcio Holland, economic policy secretary at the Finance Ministry. “There is no change in economic policy and the environment is conducive to investment. Fiscal policy is anti-cyclical, not expansionary.”

Lackluster growth is leading to deterioration in the fiscal outlook and a rising government debt burden that may lead to a downgrade in the next two years, S&P analyst Sebastian Briozzo said in an e-mailed statement.

“Continued slow economic growth, weaker fiscal and external fundamentals, and some loss in the credibility of economic policy given ambiguous policy signals could diminish Brazil’s ability to manage an external shock,” Briozzo wrote.

S&P last upgraded Brazil in November 2011. The country is rated BBB by Fitch Ratings and an equivalent Baa2 by Moody’s, which has a positive outlook on the grade.

Analysts have revised their 2013 growth forecasts for Brazil downward from 2.93% to 2.77%, the Central Bank said Monday. The downward revision in GDP forecasts was included in the Boletin Focus, a weekly Central Bank survey of analysts from about 100 private financial institutions on the state of the national economy.

This is the third downward revision to GDP estimates in as many weeks, with the latest forecasts being based on the weak 0.60% first-quarter GDP figure, the Central Bank said.

Categories: Economy, Brazil, Latin America.

Top Comments

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  • yankeeboy

    Dilma is making all the wrong economic moves.

    Who would have guessed a Communist Guerilla couldn't run a country well?

    As I said if she doesn't quickly change course they're back to the 70s with Stagflation and a falling currency.

    Jun 07th, 2013 - 12:56 pm 0
  • ChrisR

    I have been saying the same thing for a very long time now that the reason there are mixed messages is quite simple: there is NO policy and the Finance Ministry is run by a liar who not only misleads the international investment community he can't see the wood for the trees.

    Dilma seems to be burying her head in these 'alternative economics' whatever they are but they are certainly not working, so when you are in a hole you cannot see out of, stop digging.

    Jun 07th, 2013 - 01:52 pm 0
  • Brasileiro

    No problem. Brazil in 2012 was very bad and the pseud-agencies no discovery. Now, al have your time. The time from consumer, buy, bye. Ours companies is much Strong now. The snake is a giant now! 73% from our exterior commerce is with the South-South relations. If Brazil lose all trade with north, the our GDP have -0,80%. Graet Britain, Austrália Canadá, dont have anyone importance to us. USA and South África, yes!

    Jun 07th, 2013 - 09:55 pm 0
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