Brazil’s Corporate Rating Cuts to Outpace Upgrades, Fitch Says

The number of Brazilian companies facing a downgrade is five times those poised for an increased credit rating in the second half of 2015, according to Fitch Ratings.

The rating company projects that corporate operating cash flows will decline for a fifth straight year as high inflation, increased interest rates and rising unemployment erode consumer optimism and economic output. Companies have cut capital expenditures and reduced mergers and acquisitions in response to a declining economy, Fitch said. It had lowered the grade of 19 Brazilian issuers in the first half.

“Brazilian corporates remain on the ropes,” Ricardo Carvalho, senior analyst at Fitch, wrote in a report published Monday. “Approximately one of every four Brazilian corporates has a negative rating bias.”

Nationwide street protests on Sunday against President Dilma Rousseff maintained pressure on the government, and analysts surveyed by the central bank forecasting that the economy will face two straight years of recession for the first time since the 1930s.

Fitch has a negative outlook on Brazil’s BBB rating, two levels above investment grade and at the same level of Colombia, Panama and South Africa.

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