Brazil’s economy in the run-up to Olympic year in Rio is on shaky ground after Standard & Poor’s slashed its credit rating to “junk” status.
The real fell to a new 12 year low against the dollar before rallying after the central bank intervened.
It is already this year’s worst performing currency among emerging nations.
South America’s biggest economy is now seen as a risky investment and there are doubts over the government’s ability to pull out of the worst recession in 25 years.
“We’re now talking about contraction of more than two percent this year, further contraction next year. And of course, the government deficit and debt is a serious problem. So it’s no great surprise what everyone is now talking about is where will this downgrade stop, is there going to be more and probably there will be,” said Vicky Pryce, chief economic advisor for the Centre for Economics and Business Research.
Another concern is Brazil’s political crisis.
Some analysts blame the President Rousseff’s government for the downgrade.
It has sent out contradictory messages over the economy, and there’s infighting within the cabinet. Uncertainty and rumours surround the future of Brazil’s finance minister, and the ongoing Petrobras corruption scandal continues to cause damage.
The government had imposed austerity measures hoping to avoid such a downgrade, which most economists expected at some stage but not now.
Analysts said they anticipated more market turbulence in the weeks ahead.