Fitch cuts Brazil rating over worsening economic picture

“If Brazil loses the investment grade from one more agency, after S&P, a lot of pension funds would be forced to take money out of Brazil”, due to the rules regarding those funds, Fourtrade currency brokerage director Luiz Carlos Baldan told the Journal.

Standard & Poor’s cut Brazil’s sovereign rating to junk last month.

The trend for Brazil’s economy isn’t good, and Fitch’s negative outlook means there’s a 50% chance of a downgrade to the country’s rating in the next few years, Mr. Guedes said at a conference.

Fitch downgraded Brazil to BBB- from BBB the lowest rating a country can maintain before losing its investment grade rating. Fitch now projects a government deficit of nine percent of GDP in 2015 for Brazil.

Fitch said the improvement in the government’s revenue “may be sustained into FY16” but volatility in the dairy sector, which produces New Zealand’s largest export commodity, would be “an important determinant of revenue growth”.

Fitch forecasts that Brazil’s economy will contract by 3% and 1%, respectively in 2015 and 2016 before recording modest growth in 2017, with risks skewed largely to the downside.

It also noted that Brazil’s inflation rate was almost 10 percent at present, or double the mid-point of the government’s target range of between 2.5 percent and 6.5 percent.

The Brazilian real lost ground in the currency market after the downgrade but modestly.

Despite the recession, President Dilma Rousseff argues that austerity measures are needed to get the country back on track after federal, state and local governments ended 2014 with a cumulative primary budget deficit equivalent to $12.51 billion. “The government needs to do its part to stabilize the political process by having constant support”, he said.