Standard & Poor’s has cut Brazil’s sovereign debt rating to “junk” status.
As a result, Brazil has lost its investment-grade rating.
S&P said mounting political turmoil and the difficulties faced by President Dilma Rousseff’s government in tackling growing debt were behind the decision.
Brazil was awarded an investment-grade rating by S&P in April 2008, when the country’s economy was on the rise.
However, sliding commodity prices and austerity have created a recession.
Dilma Rousseff’s left-wing government had imposed austerity measures in a bid to avoid such a downgrade.
S&P downgraded Brazil – Latin America’s largest economy – sooner than had been expected.
The move – a major setback for Finance Minister Joaquim Levy’s attempts to shore up public finances – is likely to rock the Brazilian stock market on Thursday.
S&P cut Brazil’s rating from BBB-minus to BB-plus, which denotes substantial credit risk.
The outlook on the new rating remains negative, which means further downgrades could soon follow.
Brazil’s government said last month that that the economy was officially in recession.
S&P said: “The political challenges Brazil faces have continued to mount, weighing on the government’s ability and willingness to submit a 2016 budget to Congress.
“The negative outlook reflects what we believe is a greater than one-in-three likelihood of a further downgrade due to a further deterioration of Brazil’s fiscal position.”
Planning Minister Nelson Barbosa said Brazil would recover its investment-grade status when the economy returned to growth.
He said the government was working on new proposals to balance its accounts and revising programs to tackle the budget deficit.
“Brazil will continue to honor all its obligations,” Nelson Barbosa said.
Standard and Poor’s has cut France’s credit outlook to “negative”, due to concerns about the country’s struggling economic recovery.
However, the credit rating agency affirmed France’s AA/A-1+ rating, the third-highest rating.
“We believe that…a recovery of the French economy could prove elusive,” said S&P in a statement.
France’s finance minister, Michel Sapin, said the country’s debt was “one of the surest in the world”.
“We will pursue the needed reforms, to boost our medium term growth prospects,” Michel Sapin said in a statement.
Standard and Poor’s has cut France’s credit outlook to negative, due to concerns about the country’s struggling economic recovery
“French debt is one of the surest and most liquid in the world, with debt levels very much contained,” he continued.
Official figures from the Bank of France showed that the French economy did not grow at all in the second quarter, and for the third quarter it is forecasting growth of 0.2%.
“We believe that…a recovery of the French economy could prove elusive and that France’s public finances might deteriorate beyond 2014,” S&P said.
S&P added that it expected France’s budget deficit will average 4.1% of GDP between 2014 and 2017, an increase from earlier projections of 3.2%.
The French government has also said it will reduce its budget deficit to below the EU threshold of 3% of GDP by 2017, two years later than promised.
S&P said the negative outlook indicated a one in three chance that certain events would occur which would push it to downgrade France’s actual credit rating within the next two years.
For now, S&P said France’s high income per capita and productivity, recovering competitiveness and profitability among French companies, and France’s stable financial sector justified the country keeping its current rating.
S&P last downgraded France in November 2013 when it cut its rating to AA.
Standard & Poor’s has downgraded Russia’s rating to “BBB-“from “BBB” – one notch above “junk” status.
The move comes as foreign investors continue to take money out of the country amid tensions over the situation in Ukraine.
Also on Friday, Russia’s central bank raised its key interest rate from 7% to 7.5% as it sought to defend the value of the rouble.
Announcing the downgrade, S&P said: “In our view, the tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy.”
The credit ratings agency said this could “further undermine already weakening growth prospects”.
Standard & Poor’s has cut Russia’s rating to one notch above “junk” status (photo CBC)
S&P warned that further downgrades were possible if the West imposed tighter sanctions against Moscow.
Investors have been pulling money out of Russia since last year when the country’s economy ran into trouble, but this process has intensified in recent weeks amid concerns over Ukraine.
In the first quarter of this year, foreign investors have withdrawn $63.7 billion from Russia, and economic growth has slowed significantly – it is expected to grow at no more than 0.5% during 2014.
Russian shares, which have traded lower this week, fell further following the downgrade, with the MICEX stock index slipping over 1.6% at one stage.
Russia’s central bank said its rate rise was because of a higher inflation risk and the weakness of the rouble. The Russian currency has lost nearly 8% against the dollar this year.
The bank said its move would enable it to lower inflation to 6% by the end of 2014 and added it did not plan on cutting rates in coming months.
Russia’s Economy Minister Alexei Ulyukayev dismissed S&P’s move, saying that “partially, it is kind of a politically motivated decision”.
However, analysts said other credit rating agencies were likely to follow suit.
Standard and Poor’s has raised its credit outlook for the US economy from negative to stable.
In August 2011, S&P downgraded the US rating one notch from AAA to AA+, but now believes further downgrades are less likely as the economy continues to recover.
The news saw the US dollar strengthen 1.3% against the Japanese yen, and 0.2% against the euro.
But S&P is still concerned about the high levels of US debt.
The US Treasury Department, which had said that S&P’s calculations in making its initial downgrade were flawed, welcomed the latest action.
“We’re pleased that they are recognizing the progress in the US economy and fiscal results,” said Mary Miller, the Treasury’s under secretary for domestic finance.
Standard and Poor’s has raised its credit outlook for the US economy from negative to stable
The rating agency said in its report the strengths of the US include “its resilient economy, its monetary credibility, and the US dollar’s status as the world’s key reserve currency”, while its weaknesses include “its fiscal performance, its debt burden, and the effectiveness of its fiscal policymaking”.
It noted “tentative improvements”, namely Congress’s avoidance of the “fiscal cliff” at the end of 2012 and the higher-than-expected tax receipts that followed.
But it also said the ability of policymakers to address medium-term fiscal challenges had decreased over the past decade due to a deepening of the partisan divide between Republicans and Democrats in Washington.
“We believe that our current <<AA+>> rating already factors in a lesser ability of US elected officials to react swiftly and effectively to public finance pressures over the longer term in comparison with officials of some more highly rated sovereigns and we expect repeated divisive debates over raising the debt ceiling,” S&P said.
It said the likelihood of it downgrading the US’s rating in the near term was now “less than one in three”.
The move came as the Paris-based Organization for Economic Co-operation and Development (OECD) said that economic growth in the US and Japan was outstripping that of the eurozone.
But most US analysts remained cautious about the upgrade and the equity markets were little changed in New York.
Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington DC, said: “The revised rating is positive news for the dollar but I do not see it being a major catalyst.
“This is just the latest indication that we are seeing a broad stabilization and improvement in the economy and ultimately the government’s fiscal position is improving, albeit slowly.”
Rival rating agencies Moody’s and Fitch have both kept their AAA ratings for the US.
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