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By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The investment grade of Brazil has been pummeled with the downgrade on Wednesday of the country’s sovereign rating by Fitch Ratings. Along with the downgrade, Fitch also announced that it has issued Brazil a negative outlook, leaving Brazil now as junk status.

Sao Paulo, Brazil, stock market, Bovespa, investment, Brazil News, Rio de Janeiro
São Paulo Stock Exchange closed up despite the withdrawal of the country’s investment grade, photo by Rafael Matsunaga/Flickr Creative Commons License.

“Brazil’s downgrade reflects the economy’s deeper recession than previously anticipated, continued adverse fiscal developments and the increased political uncertainty that could further undermine the government’s capacity to effectively implement fiscal measures to stabilize the growing debt burden,” stated the announcement issued by Fitch on Wednesday morning.

The Finance Ministry of brazil reacted immediately to the news, stating that the withdrawal of Brazil’s investment grade by Fitch ‘refers to the difficulties arising from the political environment and the government’s capacity and determination to implement measures to correct the budget deficit in 2016’. In a statement, the Ministry says that despite the deteriorating short-term economic indicators the Brazilian economy has ‘positive and solid fundamentals’.

Opposition leader Aecio Neves disagrees. He stated that the current government does not have the conditions to push through measures that would reverse the economic situation. “This (downgrade) was not unexpected, since the fiscal adjustment has not produced the announced effects. President Rousseff does not have the political support to approve structural reforms and has put Brazil in path of increased debt, which is unsustainable,” he told Agencia Brasil.

With the downgrade, two risk agencies have withdrawn their investment grade of the country. In September S&P also reduced Brazil’s credit rating and issued a negative perspective. Brazil’s stock market however, after much oscillation during the day, closed up by 0.32 percent and the U.S. dollar closed up by 1.24 percent at R$3.92/US$1.

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