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By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Stacking more pressure on Brazil’s already ailing economy, Moody’s Rating Agency announced Wednesday it was putting the country’s Baa3 rating on review for a downgrade, with the possibility of it being cut to junk status in the near future.

Business, São Paulo, stock market, agency ratings
Moody’s may downgrade Brazil’s ratings to junk status which will significantly affect the country’s stock market, photo by Fabio Pozzebom/AgBr.

According to the Agency the turbulent political moment faced by the Rousseff Administration along with ‘rapidly deteriorating economy and worsening governability’ has increased fears of an investor flight from Latin America’s largest economy.

“Fiscal and economic activity indicators continue to sharply deteriorate with no clear sign of when they will bottom out,” stated Moody’s in its report. For analysts at the ratings company the likelihood of a turnaround in country’s economic and fiscal scenario in 2016 appears unlikely due to, among other things, the political struggle seen between the Executive and the Legislative branches.

“There is a lack of political consensus in Brazil over the need to address budgetary rigidities more aggressively by pushing reforms that tackle mandatory spending increases,” the report stated.

The report also notes that with the possible start of impeachment proceedings against President Dilma Rousseff by Brazil’s Lower House the much-needed short and medium term fiscal measures to boost the economy are likely to be placed on the sidelines.

Currently Brazil has a Baa3 rating the last level within investment grade. In September, Standards & Poor’s downgraded the country’s rating to junk status. If another agency removes Brazil from investment grade, analysts say large international investment funds will no longer be able to invest in the country, leading to a capital flight which may deteriorate Brazil’s economy even further.

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