Brazil unlikely to avoid downgrade one year from now

Brazil's fiscal accounts should lead to higher debt levels, and there are risks of a wider recession this year coupled with possible negative growth next year, as sentiment continues only to fall. 

All together, a still-deteriorated fiscal and growth situation (which are quite linked) will make it very hard to build a case to keep the investment-grade rating one year from now. The external fundamentals of Brazil are not weak,  and could serve as a counterpoint, especially if the international reserves are kept at relatively high levels and the capacity to pay external debt is not changed.

"In the medium term, only a change in the relationship between the government and the Congress could help avoid an extreme event. There are a couple of ways that this could be achieved, such as members of Congress being sensitive to the more imminent than ever threat of losing the investment-grade rating, although the odds are low given the lack of popularity of the president. Another way is if the speakers of the House of Representatives or the Senate are forced to step down from their position due to involvement in the corruption investigations held by the Prosecution Service of the Union", says Barclays. 

The two speakers define the agenda of Congress and have been very vocal in their opposition of the fiscal measures that the government proposed, and any replacement of them could represent a window of opportunity for the government to improve its relationship with the Congress and increase the likelihood of seeing changes in the fiscal path that is currently outlined.