views

Moody’s warns US that weak growth threatens its triple A credit rating

IF THE US economy grows anemically, already stretched government finances will be crimped, potentially putting downward pressure on the top AAA US rating, said Moody’s Investors Service yesterday.

“Economic growth is very important to our assessment (of the sovereign rating),” said Steven Hess, senior credit officer in the sovereign risk group with Moody’s Investors Service in New York.

The Obama administration has based its projections of reducing the budget deficit over time on solid economic growth forecasts, but Hess warned that productivity might be lower than before the global financial crisis.

“Right now we are semi-optimistic that the US will regain its previous dynamism, but if it doesn’t, then we have to think about what that implies for government finances,” Hess said.

“The implications would not be good if the US were in for anemic growth for some time to come because the government could have problems for revenue growth,” Hess added.

The White House predicts that the budget deficit for the fiscal year ending 30 September will amount to 10.6 per cent of gross domestic product, the highest level since World War Two.

The White House also forecasts deficits will fall to 3.9 per cent by 2014, still above the three per cent of gross domestic product that economists consider sustainable.

Hess warned that US households balance sheets “need to be improved and this will take some time”.