Fitch Says U.S. Debt Downgrade Possible


In its latest review of sovereign debt, Fitch Ratings warns that continuing weakness in the developed economies and the threat that the U.S. will tumble over the fiscal cliff are having a negative effect on global sovereign credit quality. The impact is also spilling over into emerging market debt, which are exposed to the weakness in developed nations' economies.

The report notes that 7 of 10 of the world's largest economies are currently on 'negative outlook' - the U.S., the U.K., and France - and that the agency "expects to resolve" these outlooks in 2013. The recent agreement in the eurozone to continue bailing out Greece is seen as a positive sign, but the single biggest threat to the global economy remains the U.S. fiscal cliff.

Emerging market economies are expected to regain some of their past momentum in 2013, with China, India, and Brazil leading the way. GDP growth in China is forecast at 8%, in India at 7%, and in Brazil at 4%.

In contrast, U.S. GDP growth in 2013 is forecast at 2.3%, while the eurozone is expected to experience GDP contraction of 0.1%. Lacking an agreement on U.S. fiscal policy could result in even lower growth than these already weak numbers anticipate.

The full report from Fitch Ratings is available here.

Paul Ausick

Filed under: 24/7 Wall St. Wire, Economy, Research