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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 [1]

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Alfonso Esparza

Alfonso Esparza [6]

Senior Currency Analyst at Market Pulse [7]
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza
Alfonso Esparza

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