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Fitch downgrades Brazil again; outlook remains negative

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Fitch downgrades Brazil again; outlook remains negative

Fitch Ratings on May 5 knocked Brazil further into junk territory,lowering the country's long-term foreign and local currency issuer default ratingsto BB from BB+.

The ratings outlook on the long-term ratings remains negative.

Fitch also lowered Brazil's country ceiling to BB+ from BBB-,and affirmed the short-term foreign currency issuer default rating at B.

"The downgrade of Brazil's ratings reflects the deeper-than-anticipatedeconomic contraction, failure of the government to stabilize the outlook for publicfinances and the sustained legislative gridlock and elevated political uncertaintythat are sapping domestic confidence and undermining governability as well as policyeffectiveness," the rating agency said.

Fitch added that its continued negative outlook reflects theongoing uncertainty surrounding progress that can be made to improve the outlookfor growth, public finances and the government debt trajectory.

Fitch revised downward its projections for Brazil's near-termgrowth prospects. It now expects that the country's economy to contract by 3.8%in 2016 and grow by 0.5% in 2017. It previous saw a 2.5% contraction in 2016 anda 1.2% expansion in 2017.

Fitch noted that Brazil's public finances remain under pressure,arguing that repeated changes to fiscal targets have undermined fiscal credibility.What's more, with a vote to decide whether to impeach President Dilma Rousseff setfor next week, Fitch warned that any political transition during the impeachmentprocess will carry implementation risks, notwithstanding opportunities for economicadjustments and reforms.