Brazil's negative 2016 budgetary piece continues to show its effects

The decision of Brazil's government to send to Congress the 2016 budget by late August not only triggered S&P's to move the sovereign's rating to non-investment grade, but also suggested to Fitch Ratings another setback to fiscal credibility, clearly showing the costs of this mistake. 

And the set of measures announced to reverse this deficit has strong implementation risks, fuelling Fitch's negative outlook. The macroeconomic forecasts have downside risks and should put Brazil even farther from its rating peers. 

The agency expects a 3% recession this year, followed by a 1% contraction next year, while the primary balance should be 0% in 2016 and 0.5% in 2017, with gross debt reaching close to 70% of GDP next year, above the BBB average of 43%, according to the press release. 

"The agency reckons that these forecasts have downside risks and overall sounded relatively bearish regarding the economic prospects and how the country is putting itself apart from its peers in the same rating scale. The conditions for another downgrade are close to our baseline scenario", says Barclays.