Fitch said on Monday that it will keep its rating for long-term US debt at the top “AAA” level, despite a congressional panel’s failure to agree on long-term deficit cuts. However, it is lowering its outlook to “negative.”
The rating agency said it has less confidence in the federal government’s ability to take the necessary steps to rein in the deficit.
A special congressional panel failed last week to reach agreement on US$1.2 trillion in deficit cuts over the next decade. The impasse triggered automatic cuts of the same amount, which are scheduled to kick in beginning in 2013.
Moody’s Investors Services and Standard & Poor’s (S&P) also left their ratings unchanged last week. However, Moody’s threatened to lower its rating if the US Congress backed off the automatic cuts.
S&P downgraded long-term US debt in August to the second-highest level, “AA-plus,” and switched its outlook to “negative.” It was the first time the credit rating agency had lowered the nation’s “AAA” rating since granting it in 1917.
The “AAA” rating is the highest available and signifies an extremely low likelihood of default.
S&P’s downgrade came days after Congress barely resolved a prolonged fight over raising the nation’s borrowing limit to avoid a potential default on the nation’s debt. US lawmakers ultimately agreed to spending cuts that would reduce the debt by more than US$2 trillion. They left much of the details to the newly created supercommittee, which had until Nov. 21 to agree on US$1.2 trillion in cuts.
In August, S&P appeared to cast doubt on the committee’s ability to meet that goal. It said it lowered the US credit rating because of politics that slowed the debt limit increase and not because it thought the US couldn’t pay its bills.
S&P then said that it was “pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics anytime soon.”
Meanwhile, Fitch yesterday upgraded mining-driven Australia’s credit rating to “AAA,” from “AA-plus,” with all three of the major ratings agencies now having the country at “AAA.”
The upgrade by Fitch came as Australia announced billions of Australian dollars in spending cuts and savings to meet its pledge to return the budget to surplus by 2012-2013, after the global economic turmoil hit revenues.
In its mid-year economic outlook, the government forecast a surplus of A$1.5 billion (US$1.49 billion) to be achieved with A$11.5 billion of savings over four years.
The new figures projected the deficit to balloon from the A$22.6 billion forecast in the May budget to A$37.1 billion in the current fiscal year, with government revenues undercut by weaker global growth.
The government has also clipped its growth forecast for the 12 months ending June next year, as well as the following financial year, in line with revisions made by the Reserve Bank of Australia earlier this month.
Economic growth for 2011-2012 and 2012-2013 is now forecast at 3.25 percent each year, down from previous forecasts of four percent and 3.75 percent respectively.
Unemployment mid-next year is now expected to be 5.5 percent, compared with a forecast six months ago of 4.75 percent.
However, Australian Treasurer Wayne Swan, recently named Euromoney’s Finance Minister of the Year, said Australia was not immune from the turmoil in Europe.
“Global economic and financial conditions have deteriorated markedly in recent months and the risks to global stability from the European sovereign debt crisis have intensified,” he said.
“This has led to a weaker near-term economic and fiscal outlook for Australia since the budget and substantial reductions to government revenues,” he added.
Swan said a return to surplus would put Australia ahead of the game compared with other advanced economies, with government net debt peaking at 8.9 percent of GDP in 2011-2012 before falling to 7.7 percent in 2014-2015.
This is well below other major economies, with Japan’s ratio at a massive 212.7 percent, the US at 101.1 percent and Britain’s sitting at 88.5 percent.
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