U.S., Brazilian Economies Passing Ships in the Night?

What a difference a year – more realistically, two or three years – makes. During the early part of this decade, Brazil was in many circles becoming the belle of the world economic ball, as experts lined up to say positive things about the emerging Latin powerhouse. At the same time, criticism mounted about the United States’ debt issues and weaker-than-expected economic growth. Both seem to be reversing course enough to get on Standard & Poor’s very public radar.

S&P did not change the U.S. sovereign credit rating this week, but it did move its outlook on the nation from “negative” to "stable." In late 2011, S&P made the controversial decision to lower the U.S. credit rating by one notch from the top, “AAA” status and skewered U.S. lawmakers for not being able to work together without partisan-based brinksmanship. That seems to have improved in S&P’s view, even if slightly:

“On the political side, Republicans and Democrats did reach a deal to smooth the year-end-2012 ‘fiscal cliff", and this deal did result in some fiscal tightening beyond that envisaged in BCA11 (Budget Control Act of 2011), by allowing previous tax cuts to expire on high-income earners. The BCA11 also has engendered a fiscal adjustment, albeit in a blunt manner. Although we expect some political posturing to coincide with raising the government's debt ceiling, which now appears likely to occur near the Sept. 30 fiscal year-end, we assume with our outlook revision that the debate will not result in a sudden unplanned contraction in current spending--which could be disruptive--let alone debt service.”  S&P also applauded the U.S. ability to absorb economic or financial shocks and the stability of the dollar as the world's leading reserve currency.

S&P was not so kind with Brazil, as it moved the nation’s sovereign credit rating outlook to “negative” on escalating debt problems and what is predicted to be the third straight year of lackluster growth after a tremendously hot run there. It is believed S&P could lower Brazil’s credit rating by at least one notch by early 2015, if not sooner.

-Brian Shappell, CBA, CICP, NACM staff writer

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