* Moody's: Brazil economy growing 2.5 percent this and next year
* Brazil less vulnerable than other emerging economies
By Silvio Cascione
SAO PAULO, Oct 1 Brazil's economy is headed for a fourth consecutive year of low growth, reducing the likelihood of a credit upgrade, a senior analyst at Moody's Investors Service said on Tuesday.
Still, the country remains less vulnerable to global market instability than other big emerging economies such as India and Turkey, which should support Brazil's rating above junk status over the coming years, senior credit officer Mauro Leos said at a conference in Sao Paulo.
Moody's rates Brazil's sovereign credit at Baa2, two notches above junk status. It revised Brazil's rating to positive in 2011 and, late last year, took the unusual step of delaying its decision on a possible upgrade by an additional year as the economy struggled to recover from a near recession.
Brazil's economy remains stuck in low gear, though, with a growth forecast of just 2.5 percent for this and next year, Leos said. This is caused by structural challenges such as low investment rates and poor infrastructure, which means any positive rating decision will require a "long-term approach" by the government, he added.
"Four years of low trend growth: that is something to pay attention to," Leos said. "It is a very long cycle and a very bad cycle."
Low growth hurts tax revenues, limiting the room for stimulus measures and potentially increasing debt over time. Some banks such as Barclays already expect a credit downgrade by one of the three main ratings agencies early next year, which could increase borrowing costs for Brazil's government and companies.
Moody's, Standard & Poor's and Fitch currently rate Brazil at the second-lowest investment grade rating, but Moody's is the only of the three with a positive outlook on that rating, which signals a possible upgrade in the next couple of years.
Another risk to Brazil's credit rating is its relatively high debt as a percentage of the economy, Leos said. Gross debt-to-GDP ratio has risen over the past few years and is now at around 60 percent, considered "high" by Moody's.
However, Brazil is less risky than other big emerging economies because of its low share of dollar-denominated debt and relatively low current account deficit, Leos said. This makes Brazil better positioned to manage risks associated with the gradual tapering off of economic stimulus in the United States, he added.