International ratings agency Moody’s said yesterday it was now unlikely to downgrade the world’s leading economies in the near future as the global economy shows signs of improvement.
The agency, however, also warned that high debt levels are a serious risk.
“While almost all Aaa-rated sovereigns have been severely hit by the global economic and financial crisis, further downgrades are unlikely over the near term,” Moody’s Investors Service said in its Aaa Sovereign Monitor report.
“Although highly unlikely, it is conceivable that a large and wealthy economy could lose its Aaa rating if it were to experience a material and irreversible deterioration in its debt conditions over the next five years or so,” said Pierre Cailleteau, managing director of Moody’s Sovereign Risk Group.
Countries given Moody’s top Aaa rating include the UK, Germany, Spain and the US. During the financial crisis Moody’s has additionally described these nations as either “resistant,” “resilient” or “vulnerable.”
“Moody’s does not expect rating downgrades in the near future, especially after the recent downgrade of Ireland [from Aaa to Aa1 with negative outlook], which had been the most ‘vulnerable’ Aaa,” Cailleteau said.
“Spain, the other ‘vulnerable’ Aaa, for now retains a safe distance from the Aaa-Aa demarcation line, mainly because potential growth is not likely to be as low as anticipated and also because the government’s balance sheet was comparatively solid at the beginning of the crisis,” he said.
Moody’s said it believed the UK and US continued to warrant the “resilient” characterization.
“However, to retain their ‘resilient’ status, the UK and US will need to severely adjust their fiscal policies, even in the unlikely event of a vigorous rebound in their economies,” Cailleteau said.
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