Brazil Could Face Double Whammy As Credit Downgrade and Higher Rates Await Next Year

Brazil’s finances are set to deteriorate substantially next year, leaving the government with few options to revive a sputtering economy and raising the threat of a credit downgrade.

The government is likely to miss its key 2014 budget target, the primary surplus, by as much as 50 billion reais ($22 billion), delivering only about half its goal, estimates by Reuters and private economists show.

Unlike most other countries, Brazil’s most-watched budget goal strips out interest payments on its debt, meaning its overall deficit would widen if the primary surplus dwindles.

Such an event could deal a major setback to Latin America’s biggest economy, which won its investment-grade credit rating in 2008 through a commitment to fiscal responsibility and strong economic growth.

Growth, however, has slowed sharply since 2011, and President Dilma Rousseff has unleashed costly tax breaks and credit subsidies in response.

via Reuters

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.