WORLD
S&P Gives Brazil Debt Negative Outlook
Baku, June 7 (AZERTAC). Standard & Poor`s rerated Brazilian sovereign debt, giving it a negative outlook due to weak economic growth and worsening deficits in Brasilia. Brazil`s sovereign debt, priced in dollars, is rated BBB-, the lowest investment grade rating available.
In May, Brazil recorded its first trade deficit in years.
S&P credit analyst Sebastian Briozzo said that the country will probably have its third consecutive year of lackluster growth, coming in at 2.5%, far enough below the 3.7% average during the roughly eight year tenure of Finance Minister Guido Mantega.
Last week, Barclays and Nomura both revised their growth targets lower by 100 basis points to 2.5%. S&P is saying the same thing now, following the herd.
Briozzo also said that consumer spending was not impressive, with low single digit growth in the first quarter. ”Slow growth has contributed to a modest weakening of the government`s financial position, including a deterioration of its fiscal outlook and a higher debt burden for the government” he said, due to increasing interest rates.
He warned that Brazil risks a lower credit rating within two years. If that lower rating comes on its foreign debt, then Brazil would be the first BRIC to lose investment grade status. Let`s not hope it comes to that.
Meanwhile, the S&P said that government banks have taken on substantial credit risk in lending to lower income earners to stimulate demand for things like automobiles, homes and white goods. ”This could present a problem in loan quality for the financial system,” said Briozzo. Brazil`s default rate is relatively low, somewhere between 4% and 6%. But a weak economy could exacerbate the problem in a worst case scenario.