S&P GlobalRatings expects credit conditions for Latin America to remain weak for 2016 as Brazil'srecession drags on and commodity prices stay low.
S&P notedthat downgrades outpaced upgrades at a rate of nearly four to one in Latin Americaso far in 2016. Negative sovereign outlooks continue to rise slowly as low commodityprices, continued uncertainty about China's growth and deteriorating macroeconomicconditions continue to dent credit quality, the rating agency stated in a July 8report.
Industry-wise,S&P pointed out that banks in Latin America continue to face market volatility,stemming from spillover from external factors, while weakening currencies acrossthe region might pressure loss ratios especially on property and casualty and healthinsurers.
Despite optimismamong investors being spurred by Brazilian interim President Michel Temer's proposedmeasures to cap real fiscal expenditure, S&P said it remains cautious aboutthe ability of the new administration to implement the reforms. "We have keptour 2016 forecast for Brazil's real GDP contraction unchanged at 3.6%, but haveincreased our 2017 projection to a 1.0% growth from 0.5%," S&P said.
Meanwhile, S&Pdoes not expect the U.K.'s referendum decision to leave the European Union to havean immediate impact onLatin American ratings, although it is monitoring potential second-order effects.These include financial markets' volatility, the risk of the dollar's additionalstrength and weaker commodity prices.
Despite theregion's weak economic conditions in the second quarter, "growth is stabilizingin most cases thanks to a recovery in commodity prices and loose monetary policiesin advanced economies," the S&P noted.
"Our baselineregional GDP forecast for 2017 has improved modestly to 2%, compared with our projectionsof a 0.9% contraction for 2016," according to the rating agency.
S&P Global Ratings and S&P Global MarketIntelligence are owned by S&P Global Inc.