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Moody's: Strains in Brazil's creditworthiness remain despite better economic prospects

Although Moody'ssees an improvement in Brazil's economic outlook, it does not expect the country'soverall credit strength to recover instantly, the rating agency said in a report.

Brazil's economycould expand 0.5% in 2017 after narrowing 3.5% in 2016, with growth supported bybusiness investment on the back of rising confidence and an expected increase incompany production, Moody's said.

Prospects ofeconomic stability is also supported by the proposed measures of President MichelTemer, given that they "are vital in alleviating investor concerns and maintainingcapital flows, as well as in boosting confidence," the rating agency stated."However, tight liquidity conditions, high interest rates and unemploymentwill continue to weigh on the economy through at least late 2017," Gersan Zurita,a senior vice president at Moody's, said in a statement.

The supportthe country's export sectors could lend to economic recovery will largely dependon exchange rate developments, Moody's said. Meanwhile, capacity utilization remainsat historical laws despite stabilizing.

Banks will remainrisk-averse in the current scenario, but they could grow their loan books fasterif confidence improves, Moody's said. "A gradual economic recovery would notonly support a rise in credit demand, but also hasten an improvement in asset quality."