Brazil, once one of the poster countries for burgeoning emerging economies, has had its rating cut to ‘junk’ by Standard & Poor’s.
Its new rating of BB+ means there is substantial credit risk for investors.
The previous rating was BBB-.
When announcing the downgrade, S&P said that the country’s political challenges “have continued to mount” as has the nation’s net debt.
In August the government admitted that Brazil was officially in recession and the economy could continue to shrink though 2016.
President Dilma Rousseff and her finance minister Joaquim Levy have taken several measures including an austerity programme, but both market and public confidence is weak.
The downgrade, which came more quickly than anticipated, will be a setback to their efforts to install renewed vigour to Latin America’s largest economy. The president’s popularity ratings have plummeted and there is dissension in her cabinet.
S&P has not ruled out additional downgrades in the near future if the fiscal position deteriorates.
