Fitch cuts Brazil rating over worsening economic picture

Fitch dealt Brazil's credit rating a one-step cut on Thursday to just above a junk rating, saying the government faces increased fiscal pressures as the economy contracts.

Fitch lowered the rating to BBB- from BBB, putting the country's bonds one notch above "speculative" or junk level, and appended an "outlook negative" warning that a further downgrade could be in store.

"The rating downgrade reflects Brazil's rising government debt burden, increased challenges to fiscal consolidation and a worsening economic growth backdrop," the rating agency said.

"The difficult political environment is hampering progress on the government's legislative agenda and creating a negative feedback loop for the broader economy."

Fitch said the recession is having a greater-than-expected impact on government revenues.

And it said "considerable uncertainty" remains over the government's retrenchment efforts, and predicted the government deficit will deteriorate to nine percent of gross domestic product this year and be above six percent of GDP next year.

It said the overall debt burden of Latin America's largest economy will then rise to about 70 percent of GDP next year, and continue to rise in 2017.

Earlier this month the International Monetary Fund said that Brazil's economy will shrink about three percent this year and another one percent next year.