Moody’s negative on Brazil in new blow to Rousseff

RIO DE JANEIRO: Ratings agency Moody’s lowered its outlook for Brazil Tuesday, in the latest blow to President Dilma Rousseff’s economic record, just weeks before voters decide if she will be re-elected.

Moody’s dropped its outlook for the world’s seventh largest economy from stable to negative just over a week after Brazil was declared in recession.

Now, as the country prepares to go to the polls on October 5, the US- based agency warned that “sustained low growth and worsening debt metrics” could see Brazil’s credit rating cut.

Observers like financial analyst Felipe Queiroz said the downgrade reflects the failure of Brazil’s macroeconomic policies.

“Inflation is high, growth low and there are no expectations of an improvement,” Queiroz told AFP.

“There is also ‘creative’ accounting, with transfers of state firms’ balance sheets to the public sphere to give a rosier picture.”

Moody’s cited sustained poor growth, forecasting “little sign of a return to potential in the near term,” coupled with “a marked deterioration in investor sentiment.”

The agency nonetheless confirmed a Baa2 government bond rating for Latin America’s largest economy. And it noted Brazil’s “continued resilience to external financial shocks given its international reserve buffers” and its “large and diversified economy.”

The finance ministry shrugged off the outlook downgrade, insisting that in the second half of the year the problems assailing a country with “a solid economy” would recede amid “a gradual recovery” through 2015.

But social democratic opposition candidate Aecio Neves, trailing a distant third in the polls, said in a statement that Moody’s move shows that Brazil’s economic and social gains are being put at risk by wrong economic policy decisions.”

Following Moody’s decision the Sao Paulo stock market ended the day at 58,676 points, having shed 0.87 per cent.

Rousseff is battling to see off environmentalist rival Marina Silva, who polls show is on course to narrowly beat her in a October 26 run-off. Silva, an activist turned senator, would be Brazil’s first black president.

A Tuesday poll showed a virtual dead heat, accounting for poll margins of error.

Rio University economist Margarida Gutierrez said: “There is a deterioration in macroeconomic fundamentals.

“Inflation is rising, there is no growth, the external deficit can only grow and public accounts are in a mess” to the degree that “nobody knows the size of the public deficit,” he told AFP.

Moody’s forecast that GDP will this year grow by less than one per cent, its lowest advance since 2009, and will fall short of two per cent in 2015.

Having endured four straight years of faltering growth, Brazil is now barely set to grow at all this year, with the country’s Central Bank citing a rate of just 0.48 per cent. — AFP