Moody's says Brazil must correct course to keep rating

RIO DE JANEIRO, June 25 Wed Jun 25, 2014 3:06pm EDT

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RIO DE JANEIRO, June 25 (Reuters) - Moody's Investors Service on Wednesday warned that Brazil's next government needs to "reverse negative economic trends" and boost growth if it wants to maintain the country's credit rating.

The ratings agency's warning comes less than four months before President Dilma Rousseff seeks re-election in a race that is becoming increasingly tighter. Although Rousseff remains a favorite to win, opinion polls show she has been losing popularity among voters.

Brazil currently has a stable outlook on its Baa2 rating from Moody's, which means a downgrade is not likely in the next 18 months, but the firm suggested that a negative outlook revision could come soon if the country continues to struggle with "declining investment spending, slowing consumption, and worsening investor sentiment."

"The rating agency considers Brazil's growth prospects to be caught in something of a reinforcing vicious cycle, with poor investor and consumer expectations leading to less investment and economic growth, which in turn fuels additional negative sentiment," Moody's said in a statement.

Similar issues have already led competing firm Standard & Poor's to cut Brazil's credit rating to the lowest investment-grade level in March.

Since then, Brazil's growth prospects have continued to deteriorate. Earlier this week a central bank poll showed economists cut their forecasts for Brazil's 2014 economic growth for a fourth straight week, to only 1.16 percent.

Moody's noted that the deterioration in economic perspectives will "complicate matters for the next administration as negative conditions are likely to persist for at least the next several months."

Moody's Baa2 rating stands two degrees into investment-grade territory. (Reporting by Walter Brandimarte; Editing by Bernard Orr)

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