Once a darling of the BRIC nations and star of Latin American promise, Brazil has fallen on tough times as of late. Yesterday ratings firm Standard & Poor’s officially cut Brazil’s debt rating to junk-grade BB+ in a surprise move late Wednesday as reported by the Wall Street Journal.
Brazil’s economy is suffering its worst recession in a 25 years, forecast to shrink 2.4% this year and 0.5% in 2016. One of the major culprits of the downgrade S&P cited was political gridlock, which is presenting a challenge to reversing the downtrend, as the legislative branch of Brazil’s government, the National Congress has repeatedly rejected program cuts and tax increases as a way to shore up Brazil’s deteriorating finances.
“The change in strategy on the budget proposal was key for us,” said Lisa Schineller, a managing director in the sovereign ratings department for S&P in a conference call on Thursday.
Some highlights from the S&P downgrade include:
– Standard & Poor’s Ratings Services lowered its long-term foreign currency sovereign credit rating on the Federative Republic of Brazil to ‘BB+’ from ‘BBB-‘
– With per capita GDP of about US$8,900, Brazil’s growth prospects are, in our opinion, below that of other countries at a similar stage of development.
– Our projections estimate a contraction of about 2.5 percent this year followed by another 0.5 percent contraction in 2016, before returning to modest growth in 2017.
– The negative outlook reflects our view that there is a greater than one-in-three likelihood that we could lower our ratings on Brazil again.
1 US Dollar now equals 3.86 Brazilian Real as the currency plummeted even more on the latest negative news.
To view the official S&P notice, click here.