Fitch downgrades Brazil’s outlook to negative, forecasts GDP decline

Fitch downgrades Brazil’s outlook to negative, forecasts GDP decline

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Credit rating agency Fitch Ratings has downgraded the outlook of Brazil to negative from a previously positive rating. Fitch said Brazil’s GDP is expected to decline 4 percent in 2020, as Covid-19 changed the prospects for growing Latin America’s largest economy.

Fitch said the downgraded outlook reflects the deterioration of Brazil’s economic and fiscal outlook as well as  “downside risks,” given renewed political uncertainty, including tensions between the executive and congress, and “uncertainty over the duration and intensity of the coronavirus pandemic.”

“These factors could hinder the government’s capacity for fiscal adjustment and implementation of economic reforms after the coronavirus pandemic and a sizeable emergency policy response,” Fitch said.

Fitch said the pandemic might lead to increased public indebtedness, “eroding fiscal flexibility and increasing vulnerability to shocks.”

“Conversely, Brazil’s ratings are supported by its large and diverse economy, high per capita income relative to peers and a capacity to absorb external shocks underpinned by its flexible exchange rate, moderate external imbalances, robust international reserves and deep domestic government debt market,” the agency noted.

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