After a few years on the upswing, this: Downgraded from positive, to stable,
Moody’s Lowers Outlook for Brazil
The ratings company says challenges are building for Latin America’s largest economy amid a sharp slowdown in economic growth.
It’s the second time this year that Brazil has had bad news on the credit ratings front. In June, Standard & Poor’s cut its outlook on Brazil to negative from stable, raising the possibility of an outright downgrade. A lower credit rating makes it more expensive to borrow money.
In a statement, Moody’s said that some of the key factors that were positive for Brazil “are no longer present.”
Latin America’s biggest economy expanded less than forecast by analysts in five of the past six quarters and the central bank trimmed its 2013 growth outlook to 2.5 percent from 2.7 percent this week. Brazil’s industrial production unexpectedly stalled in August as factories reduced output of consumer goods, suggesting gross domestic product will contract in the third quarter, according to Banco J. Safra SA.
The lowering of the outlook is “a testament to maybe some of the structural constraints on growth that Brazil currently faces because we haven’t seen enough progress on structural reforms over the last several years including investments in basic road infrastructure,” said Leif Eskesen, an economist at HSBC Holdings Plc in Singapore. “They are running a government deficit of more than 3 percent and the gross debt-to-GDP ratio has been rising.”
It needs to rediscover an appetite for reform by reshaping public spending, especially pensions.
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Second, it must make Brazilian business more competitive and encourage it to invest
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Third, Brazil urgently needs political reform
That’ll be a good start.