Pessimism on Brazil soars to record in poll as downgrade looms

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

BRASILIA, Brazil — Investors have never been more pessimistic about Brazil President Dilma Rousseff's policies, with only 10 percent saying the nation can avoid a credit-rating downgrade in the next year, a Bloomberg Global Poll shows.

Fifty-one percent say they are pessimistic about Rousseff's policies, compared with 22 percent when she took office in January 2011, according to the poll of 750 analysts, investors and traders who are Bloomberg subscribers. The world's second- largest emerging market will offer one of the worst opportunities over the next year compared with the U.S., Britain, European Union, Japan, India, Russia and China, respondents say.

The government has been struggling to revive the economy as above-target inflation and a widening budget deficit erode investor and consumer confidence. Rousseff will end her first term next year with the slowest four-year expansion of gross domestic product since 1990, according to the latest central bank survey of economists. Standard & Poor's in June placed Brazil's rating on negative outlook, citing weak growth.

"Confidence in Ms. Rousseff's policies has fallen for a number of reasons, chief of which is perhaps the dramatic slowing of the real GDP growth rate in the country at the same time inflation has remained high," survey respondent James Craske, a global equity analyst with Victory Capital Management in New York, wrote in an e-mailed response to questions. "We are underweight in the country at the moment and will most likely remain as such for some time."

Moody's Investors Service last month followed S&P in lowering its outlook on Brazil to stable from positive. Moody's cited the country's 59 percent government debt-to-GDP ratio, compared with a 45 percent median for other nations whose sovereign bonds have the same rating. The two rating companies highlighted the increase in public lending.

The week after Brazil posted its biggest budget deficit since 2009, S&P Managing Director Regina Nunes on Nov. 8 said a downgrade of its rating may occur sooner if its fiscal accounts worsen. S&P and Moody's assign Brazil's sovereign debt the second-lowest investment grade rate, BBB and Baa2, respectively.

Economic growth slowed to 0.9 percent last year from 2.7 percent in 2011 and 7.5 percent in 2010. GDP will climb 2.5 percent this year before easing to 2.1 percent in 2014, according to about 100 economists surveyed by the central bank on Nov. 14.

Latin America's largest economy is deteriorating, according to 43 percent of those questioned in the Nov. 19 Bloomberg Global Poll, against only 10 percent who see it improving and 27 percent who forecast stability.

Brazil probably or certainly will be downgraded over the next 12 months, according to 39 percent of the Bloomberg customers who were surveyed.

"Brazil will get an S&P downgrade by 2015," survey participant Carlos Saccone, Head Investment Advisory at HSBC Bank SA in Montevideo, Uruguay, said in an e-mail. He cites low economic growth, high corporate taxes and investment flow reversals as some of the reasons.

Policy makers have boosted the benchmark Selic interest rate by 2.25 percentage points since April to 9.5 percent, the biggest increase among 49 of the major world economies tracked by Bloomberg. While inflation has slowed for four straight months, it has remained above the mid-point of the 2.5 percent to 6.5 percent target range for three years.

Only 22 percent of those surveyed say the central bank will bring inflation back to or below the 4.5 percent target in the next 12 or 18 months. The target will be reached in the next two or three years, 37 percent of the respondents say.

Selzer & Co., a Des Moines, Iowa-based public opinion research company, conducted the survey, which has a margin of error of plus or minus 3.6 percentage points.