Brazil Downgraded Again, Five Months After Losing Investment Grade Status

02/18/2016 - 09h18

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DE SÃO PAULO

The credit ratings agency Standard & Poor's downgraded Brazil from BB+ to BB on Wednesday (17), after deciding that the country's process of fiscal adjustment will take longer than expected. The outlook is negative.

Emmanuel Dunand/AFP The downgrade reflects a deterioration in Brazil's credit profile since September.

S&P stripped Brazil of its investment grade rating in September last year, with Fitch following suit in December. Of the big three ratings agencies, only Moody's has maintained Brazil's investment grade status - though it too is considering a downgrade.

In a statement, S&P said that it expects the public deficit to be on average 7% of GDP between 2016 and 2018, with public debt expected to be around 60% of GDP.

The downgrade reflects a deterioration in Brazil's credit profile since September. "We now expect a longer process of adjustment, with slower correction of fiscal policy and more than a year of economic recession," read the statement.

The agency considers that the risk of fiscal policy correction stalling is high, considering the government's inability to pass budgetary legislation in Congress at the end of last year.

S&P estimates that the Brazilian economy shrank by 3.6% last year and expects a further 3% retraction this year. GDP growth is expected to return in 2017.

Translated by TOM GATEHOUSE

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