Moody’s Downbeat on Outlook for Brazil

Moody’s Investors Service has downgraded the outlook on Brazil’s Baa2 government bond rating to negative from stable.

The credit ratings agency said the change of outlook applies to all rating classes for ‘Brazil, Government of’, i.e. issuer ratings, government bond ratings and shelf ratings. The foreign currency and local currency country ceilings remain unchanged.

Moody’s said the rating action reflects the rising risk that sustained low growth and worsening debt metrics indicate a reduction in Brazil’s creditworthiness, which would trigger a downward migration in its credit rating. In particular, it cited:

  • A sustained reduction in Brazil’s economic growth, which shows little sign of a return to potential in the near term.
  • A marked deterioration in investor sentiment, which has negatively impacted fixed capital formation in Brazil.
  • The fiscal challenges these economic headwinds pose, impeding the reversal of the upward trend in government debt indicators

At the same time, Moody’s affirmed Brazil’s government bond rating at its current Baa2 level, based on account of the country’s continued resilience to external financial shocks given its international reserve buffers; the government balance sheet’s limited vulnerability to sudden changes in global risk appetite compared with its peers; and the underlying credit benefits derived from Brazil’s large and diversified economy.

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