Moody's comments on Brazil outlook, notes Baa2 rating incorporates a slower growth outlook
- Brazil's Baa2 sovereign credit rating with a stable outlook captures the country's large and diversified economy and its middle-to-high per capita income, says Moody's Investors Service in its annual sovereign credit analysis. Although it estimates potential GDP growth at 3%, Moody's expects Brazil's GDP growth in 2014 to remain in the 2% range, where it has been since 2011.
- In September 2013, Moody's changed Brazil's credit outlook to stable from positive, as persistent low growth interrupted improvement in several economic and fiscal indicators. One important ratio showing deterioration is Brazil's debt-to-GDP measure, which has been climbing towards the 60% mark and Moody's estimates it could reach 62% in 2014.
- The path debt-to-GDP takes will strongly influence Brazil's sovereign credit outlook, says the rating agency. An important question to sovereign credit quality is whether authorities can restore conditions that will eventually lead to a declining trend in the debt ratio.
- Brazil has limited fiscal flexibility, given a rigid government spending structure and relatively heavy interest burden. According to Moody's, the main challenge public finances face is the persistent increase of primary current spending.
- Protests in various cities around the country in 2013 expressed social discontent with the quality of government and with its ability to deliver public goods and services. However, Moody's does not expect upcoming elections to shift policies drastically given general consensus for preserving macroeconomic stability. Still, Moody's says Brazil faces political challenges related to difficulties in passing reforms necessary to remove structural obstacles that constrain the country's medium-term economic prospects.