Slow growth, deteriorating funding conditions, and fiscal pressures have led to more pronounced risks facing Latin America, according to a new Fitch Ratings report.
'Key test for governments will be to adjust to the new operating environment, diversify economies, and implement reforms to gain competitiveness. Until that happens, lower growth may be the 'new normal' for the region,' said Rui J Pereira, Managing Director and Regional Credit Officer.
In addition to slowing growth and fiscal pressures, risk aversion has also increased with weaker issuers facing limited access to international debt markets. However, market conditions vary significantly by issuer profile and the regional political/economic conditions, with Brazil the most negatively affected in recent quarters.
Capital expenditures aimed at growth that hasn't materialized, together with slower revenue expansion, has also resulted in rising leverage for some corporates in the region. Weakening operating trends coupled with challenging financing conditions is likely to pressure regional corporate ratings over the short-term.
Political risk has also grown, with several administrations facing weaker approval ratings in part due to corruption investigations.
Increasing risks have resulted in downgrades outpacing upgrades and caused the percentage of issuers on Negative Outlook to rise. Approximately 18% of Fitch rated LatAm credits are on Outlook Negative and principally concentrated in Brazilian corporates and financial institutions.
