The Fitch ratings agency yesterday revised its outlook for Russia to negative from stable after the US slapped new sanctions against Russian officials amid the Ukraine crisis.
“The revision of the outlook to negative reflects the potential impact of sanctions on Russia’s economy and business environment,” Fitch Ratings said in a statement.
“Since US and EU banks and investors may well be reluctant to lend to Russia under the current circumstances, the economy may slow further and the private sector may require official support,” it said.
On Thursday, US President Barack Obama announced a new round of punitive measures against 20 Russians, including some of Russian President Vladimir Putin’s closest allies, for Moscow’s takeover of Crimea, while the EU also slapped an assets freeze and travel ban on 12 more Russians and Ukrainians.
“The direct impact of sanctions announced so far is minor, but the incorporation of Crimea into the Russian Federation will likely lead the EU and US to extend sanctions further in response,” Fitch said. “Furthermore, foreign investors may anticipate further official action and restrict Russian entities’ access to external financing,” it added.
“In a worst-case scenario, the US may prevent foreign financial institutions from doing business with Russian banks and corporates.”
On Thursday, Standard & Poor’s ratings agency also lowered its outlook for Russia, saying that Russia’s move to annex Crimea could also reduce investment, cause investors to pull money out of the country and reduce overall economic performance.
It cut the outlook to negative from stable, meaning it could cut the country’s credit rating within the next 24 months.
Meanwhile, Fitch Ratings yesterday affirmed the US’ credit ratings at “AAA” with a stable outlook, removing the distant danger that it might downgrade the world’s largest economy.
The action resolves the negative watch that Fitch had placed on the US in October last year, when political wrangling over the debt ceiling had raised the risk of default.
The US was embarrassed and world financial markets were roiled in 2011 when S&P downgraded the country’s rating to “AA plus.” S&P currently has it on a stable outlook.
Fitch said the latest crisis over the debt limit had not adversely affected US Treasury yields or the appetite of foreign investors for the debt.
The agency also said the US had greater debt tolerance than other triple-A peers owing to the unparalleled financing flexibility provided by being the issuer of the world’s reserve currency and benchmark fixed-income asset.
“Strong fiscal consolidation has been achieved,” Fitch said.
The agency expected the US budget deficit to decline to 2.9 percent of GDP in the 2014 fiscal year, from 4 percent in fiscal 2013 and 6.7 percent in 2012.
However, Fitch said there were still risks to the ratings outlook, including if authorities failed to address rising expenditure pressures from an aging population and higher interest rates later in the decade.