May 30th at 2:44pm

A Brazil exchange traded fund is losing its momentum and testing its short-term trend line as economic and political uncertainty begins to weigh on investors.

The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) declined 2.1% Friday, falling below its 50-day simple moving average. EWZ is down 1.5% over the past week, but the fund is still up 15.9% over the past three months.

Brazil’s economy expanded 0.2% in the first quarter while investment demand declined 2.1%, reports David Biller for Bloomberg.

Brazil’s central bank has hiked interest rates by 3.75 percentage points to 11% to stave off a spike in inflation but the tighter monetary policy has pressured economic growth.

Standard & Poor’s ratings firm downgraded Brazilian debt to BBB- in March, the first time in over a decade, due to weak growth and distending debt levels. [Brazil ETFs Hold up Well After S&P Downgrade]

Meanwhile, the combination of high inflation and slow growth is hurting Brazil President Dilma Rousseff’s outlook ahead of the October general elections.

“The lack of confidence and uncertainty regarding the elections and the possibility of power rationing are again being a drag in terms of investment,” Carlos Kawall, chief economist at Banco J. Safra, said in the article. “We have more trouble ahead.”

The country is suffering from its worst drought in four decades, which has reduced generation from hydroelectric dams that provide 80% of the country’s electricity source.

Banco Fibra SA downwardly revised its forecast for Brazil’s economy to grow 0.8% from 1.5% after the GDP report, the slowest pace since the economy contracted in 2009. Economists esimate that the economy will average a 1.8% expansion in 2014, down from a 2.5% outlook last year. Analysts expect inflation to continue creeping up and end at 6.47% this year.

“The main reason for this deceleration is basically confidence,” Roberto Padovani, chief economist at Votorantim Ctvm, said in the article. Lack of “investment is really preventing the country from moving on.”