Risk Agency Further Downgrades Brazil’s Credit Rating

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – After withdrawing Brazil’s investment grade ranking in December, risk classification agency, Fitch, once again lowered the country’s credit rating, now from BB+ to BB. According to the risk agency the country remains in negative perspective, and more downward revisions may occur.

“The downgrade of Brazil’s ratings reflects the deeper-than-anticipated economic contraction, failure of the government to stabilize the outlook for public finances and the sustained legislative gridlock and elevated political uncertainty that are sapping domestic confidence and undermining governability as well as policy effectiveness,” stated the press release by the company on Thursday, May 5th.

With the additional downgrade, Fitch places Brazil at the risk level seen in 2006. The two other main risk agencies, Moody’s and Standard&Poor’s also lowered Brazil’s ratings last year.

The agency now forecasts that economic growth will reach -3.8 percent in 2016 and 0.5 percent in 2017, down from the December forecast of -2.5 percent and 1.2 percent, respectively. “The continuing deep economic contraction reflects the high level of political uncertainty, depressed confidence, deteriorating labor markets and strong external headwinds from lower commodity prices, China’s slowdown and tighter external financing conditions,” states the risk agency.

On the positive side the agency notes that some macroeconomic imbalances have begun to improve. According to Fitch, the IPCA inflation index, after peaking at 10.7 percent in January of 2016 has begun to decline, and the agency forecasts that this decrease should continue throughout the year.

In this economically pessimistic scenario for the country, however, nineteen large Brazilian companies continue to hold investment grade in at least one of the three large international risk agencies, report globo.com. According to the news source companies such as Ambev, Vale, Raízen, BRF, Braskem, Gerdau and Klabin continue to be seen as favorable for foreign investors.