Fitch: Brazil 2021 Outlook Hindered by Multiple Shocks and Political Uncertainty

RIO DE JANEIRO, BRAZIL – Brazil is experiencing multiple shocks that add to the uncertainty of a rebound in 2021. The assessment was made by Shelly Shetty, director of Fitch and one of those responsible for the Brazilian rating, during a live broadcast of XP Investments on Friday, June 19th.

In addition to the coronavirus pandemic, which has damaged all global economies, Brazil is also facing a shock in commodity prices, foreign exchange, and politics. “The country was doing its homework and things were slowly heading towards the upside,” she said.

Shetty was referring to the approval of the welfare reform and plans to vote on other measures aimed at controlling the country’s fiscal framework before the pandemic. Now, like the other global economies, Brazil is forced to increase spending to avoid a more severe collapse.

“Brazil has already spent some six percent of its GDP on aid packages, but the real cost of assistance will undoubtedly exceed that,” she said. “We must monitor the behavior of this throughout the year.”

The rating agency said the increase in uncertainty led to a cut in Brazil’s rating outlook to negative in May this year. Nevertheless, the fiscal effort previously undertaken by the government justified maintaining the country’s credit rating at “BB-” – three levels below the minimum rating for an economy to be considered “investment grade”, or good payer to international creditors, at ” BBB-“.

Accordingly, Fitch also revised its projection for Brazilian GDP growth in 2020 from a high of two percent to a drop of six percent. “When we look at 2021, we are not sure what the economic rebound will be like. There are fiscal and political uncertainties, uncertainties over the reforms”.

Shelly said Brazil will have a double-digit primary deficit in 2020, but next year it could halve as fiscal control, reform discussions and economic rebound converge. However, there is a risk that this will not be the case.

“The debt/GDP ratio will be higher than 90 percent after the pandemic. Brazil will stand between 95 and 100 percent for the next two to four years. And the political uncertainties are hindering prospects,” concluded Fitch’s director.

Source: InfoMoney