Brazil was stripped of its prized investment-grade rating Wednesday in a major blow to Latin America's largest economy already devastated by political and economic uncertainty. U.S.-based credit rating agency Standard & Poor's (S&P) said it had lowered the country's sovereign rating by one notch to BB+ from BBB-. S&P cited mounting "political challenges" and argued that the change "reflects internal disagreement about the composition and magnitude of measures needed to redress the slippage in public finances." President Dilma Rousseff's fractious relations with the Brazilian congress about measures to boost the economy and rebalance the country's books, as well as the increasing isolation of Finance Minister Joaquim Levy, have made investors recoil. The agency said it maintained Brazil's negative outlook, believing there is "a greater than one-in-three likelihood of a further downgrade due to a further deterioration of Brazil's fiscal position. Rousseff has struggled to shore up public accounts, recently delivering to congress a 2016 budget proposal with an unprecedented primary deficit of 30.5 billion reais ($8 billion), or about 0.5 percent of gross domestic product (GDP). This is despite having pledged a 0.7 percent primary surplus in July, itself revised down from 2 percent at the start of the year.
Brazil also recently re-entered recession after second-quarter results showed the economy had shrunk by 1.9 percent. Economists now believe GDP will contract by around 2.5 percent this year. The real has also weakened 45 percent against the dollar so far this year, and interest rates were recently held at an eye-watering 14.25 percent in a bid by Brazil's central bank to stem near 10 percent inflation.
A sprawling corruption scandal at state-run oil giant Petrobras has seen a range of top Brazilian executives and political figures from Rousseff's ruling coalition investigated, arrested and convicted, and left the president's approval rating in single digits, as well as wiping billions of dollars from the country's finances.
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