São Paulo – Political uncertainty, “adverse” fiscal developments and deep recession were some of the reasons that led credit rating agency Fitch Ratings to downgrade Brazil’s rating this Wednesday (16). Fitch is the second of the Big Three rating agencies to do it. Standard & Poor’s led the way in September, and Moody’s said it will revise Brazil’s grade in early 2016.<\/p>\n
In its assessment of the Brazilian economy, Fitch mentioned political turmoil, the fact that Gross Domestic Product (GDP) shrank 3.7% in Q3 2015 from Q3 2014, and the “difficult” external scenario, with the slide in commodity prices and China’s slowdown. It forecasts that GDP will drop 3.7% this year and 2.5% in the next one. <\/p>\n
“Brazil’s downgrade reflects the economy’s deeper recession than previously anticipated, continued adverse fiscal developments and the increased political uncertainty that could further undermine the government’s capacity to effectively implement fiscal measures to stabilize the growing debt burden,” Fitch said.<\/p>\n
The fact that a second agency has downgraded Brazil could reduce the influx of US dollars to the financial market. This is because some investment funds can only invest in countries given investment grade by at least two of the Big Three agencies. Now, Brazil is only rated as such by Moody’s. On Fitch’s scale, the Brazilian grade fell from BBB- to BB+. Besides the downgrade, the country’s outlook is now negative, meaning that an another downgrade could come in the future.<\/p>\n
According to information from consulting firm CMA, as of 1:23 pm today the US dollar was up 1.83% to BRL 3.94. The main index of the São Paulo Stock Exchange (Bovespa) was down 0.43% to 44,677 points.<\/p>\n
In a statement, the Ministry of Finance reiterated its confidence in the Brazilian economy’s ability to resume economic growth. “Despite the short-term indicators and the current uncertainty, the Brazilian economy stands on positive, solid foundations,” the statement reads. The Ministry also said that it is working in tandem with the federal government to address existing fiscal imbalances. <\/p>\n
*Translated by Gabriel Pomerancblum<\/strong><\/p>\n