Brazil showing resilience to rise in global risk

Brazil – rated BBB by Fitch and S&P; Baa2 by Moody’s – has succumbed to increased risk this year, in line with the global trend.

All five economic risk factors have been downgraded as the growth outlook has diminished. There has been no improvement in political risk either, with scores for three indicators – regarding its institutions, information transparency and regulatory/policy environment – all slipping. And Brazil’s corruption risk score of just 4.6 out of 10, although unchanged, serves as a salutary reminder that risk is a multifarious concept.

However, the anxiety creeping into ECR contributors’ assessments has not been enough to take the gloss off the sovereign’s long-term rise in the global rankings. Brazil, lying in 37^th place – down just one since January – is still three places higher than in 2010 and has climbed a substantial 27 places during the past five years.

It is a long-term development that has not gone unnoticed among emerging market investors and it keeps Brazil’s nose in front of other LatAm risers in ECR’s survey, Colombia (now 40^th), Mexico (42nd) and Peru (45^th), even if it still trails the regional leader, Chile.

Signs of stronger growth re-emerging justify Brazil’s risk-score resilience. A combination of lower borrowing costs and government assistance, including a reduction in car tax to boost the vehicle industry (Brazil: New lines of support), appear to be working.

Retail sales, employment and the central bank’s activity indicator all now seem to be pointing in the right direction. And to help the economy along, the government unveiled a new $66 billion infrastructure programme last week to kick-start the economy.

This is in addition to sports-related projects, as the country looks forward to hosting the 2014 Fifa World Cup and 2016 Olympic Games.

This article was originally published by Euromoney Country Risk.