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Brazil In Trouble
Moody’s May Junk Brazil

Between a messy (if hopeful) leadership transition in Argentina and a potentially violent power struggle in Venezuela, South American politics are complicated and unpredictable these days—and the collapse in commodities prices has contributed to that circumstance. By far the biggest star to fall in these conditions is Brazil, where the news keeps getting worse. Bloomberg:

Brazilian stocks fell after Moody’s Investors Service signaled the country’s credit rating may be cut to junk, highlighting concern about forecasts calling for the longest recession since the 1930s.

State-controlled oil producer Petroleo Brasileiro SA, whose credit rating was reduced to three levels below investment grade by Moody’s on Wednesday, declined. Lender Itau Unibanco Holding SA contributed the most to the benchmark equity index’s drop. Moody’s cast doubt on Brazil’s ability to shore up its budget as political turmoil and a corruption scandal fuel gridlock in Congress.

“It’s inevitable that we lose our investment grade status,” Alvaro Bandeira, an economist at Banco Modal, said from Rio de Janeiro. “It will be very hard to attract investors now to the country, considering the political and economic scenarios.”

Two months ago, Standard & Poor’s cut Brazil’s rating to junk, so this latest downgrade isn’t exactly surprising. But with a major corruption scandal and a looming impeachment trial for President Dilma Rousseff, Brazil’s political leadership doesn’t appear capable of stabilizing the economy. We expect things to get worse before they show signs of getting better.

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