Brazil getting ugly – Rabobank

By FXStreet FXStreet (Guatemala) – Analysts at Rabobank explained that on September 9th, Standard & Poor’s downgraded Brazil from BBB- to BB+, removing the Investment Grade (IG) stamp and replacing it with ‘junk’ status while leaving the outlook as “negative”.

Key Quotes:

“According to S&P: “The negative outlook reflects what we believe is a greater than one–in–three likelihood of a further downgrade”. We see significant risk of a follow-up downgrade from S&P, potentially as early as before year-end but more likely in early 2016.

Fiscal slippage due to expenditure rigidity and falling revenues has led to deteriorating medium-term debt sustainability metrics for Brazil since 2012. The heterodox program put in practice by Dilma Rousseff in her first term as president structurally reduced revenues and boosted public spending. As a result, the budget balance surplus eroded quickly.

Political stability remains elusive and the government’s relationship with congress may remain somewhat hostile given that lack of consensus within the government and the weakening economic outlook. We found a robust negative relationship between unemployment and government evaluation and if our base case scenario for the labor market is proved correct then government support from the public will remain low for a long time.”
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Source:: FX Street