20121002 efar us sovereign ratings_vs04


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20121002 efar us sovereign ratings_vs04

  1. 1. QNB Economics economics@qnb.com.qa 06 October 2012 Debt and economic concerns will put pressure on US ratingsThe continuing slide in the US fiscal position, along agency Moody’s, mentioned the possibility ofwith a lacklustre economic performance, will likely lowering the US government bond rating to Aa1 inimpact its sovereign ratings in 2013, according to 2013, from the current Aaa.QNB group analysis. The US federal debt to GDP, The ratio of US federal debt to GDP has increasedfiscal deficit, and economic growth and outlook are from 40% in 2008 to 68% in 2011, and is estimatedfactors that are impacting the ratings outlook. In a to reach 73% by year-end 2012, according to thespecial comment earlier in September 2012, ratings US Congressional Budget Office (CBO). This will be 1
  2. 2. QNB Economics economics@qnb.com.qa 06 October 2012the highest level since 1950. In absolute terms, Fe de ra l Debt (Actua l) CBO Alte rn a tive CBO Ba se lin eunder the CBO’s baseline scenario (includingspending cuts), that would translate into US$14.5trn of federal debt by 2022, from US$11.3 trn as at 00 02 04 06 08 10 12 14 16 18 20 22 Source: US Congressional Budget Office and QNB Groupyear-end 2012. In addition to federal debt, overall analysisgovernment debt includes around US$4.5 trn of Growing debt means that overall government debtsecurities held by federal trust funds and other topped US$16 trn (103% of GDP) in Septembergovernment accounts. 2012, nearly reaching the ceiling of US$16.4 trn, US Federal Debt to GDP (2000-22) which was set in August 2011. In comparison, UK’s (% of GDP) 2
  3. 3. QNB Economics economics@qnb.com.qa 06 October 2012with a rating of Aaa has a government debt to GDP elections slated for November 6th, Governmentat about 86%. efforts to reduce the deficit through spending cuts and tax increases, will most likely come into effectWith current estimates putting incremental only in 2013 at the earliest.government borrowing at over US$100 bn a month, Meanwhile, economic indicators show mixedthe debt limit is likely to be reached by year-end. signals, with signs of a weak recovery.The CBO estimates that the US government deficit Key US Economic Indicatorswill total US$1.1 trn (7.3% of GDP) in the currentfiscal year, which ended on September 30th. This isthe fourth consecutive fiscal deficit and shows nosigns of improvement in the short-term. With US 3
  4. 4. QNB Economics economics@qnb.com.qa 06 October 2012 was owing to a slowdown in personal consumption Consumer confidence index 80 Purchasing managers index 800 Housing starts (’000, right axis) 75 750 70.3 and fixed investment. 70 69.5 700 65 61.3 60 650 Among the positive signals of economic activity, 55 51.5 600 53.1 49.6 50 was the national purchasing managers index (PMI), 550 45 40 500 Aug Oct Dec Feb Apr Jun AugSep 11 12 12 a benchmark indicator of corporate activity. TheSource: Global Insight and QNB Group analysisWhile US real GDP growth in the first quarter was PMI rebounded in September to 51.5. In August theestimated at 2.0%, real GDP estimates for the PMI was at 49.6, slightly below the 50-point mark,second quarter of 2012 were revised downwards which is viewed as the dividing point betweento 1.3%, from 1.7%. The deceleration in real GDP expansion and contraction. 4
  5. 5. QNB Economics economics@qnb.com.qa 06 October 2012Another indicator is the conference board’s There has also been a recovery in the housingconsumer confidence index, which increased in market, as low prices and interest rates haveSeptember to 70.3, from 61.3 in August. The index encouraged home buyers. The number of housingrebounded to levels not seen since February earlier starts peaked in June 2012 at 754,000 - a level notthis year, as consumers were more positive in their seen since October 2008. Although housing startsassessment of current conditions, mainly the job contracted in July to 733,000, they recoveredmarket, and much more optimistic about the strongly in August, rising to 750,000.outlook for the business environment, employment Looking at the jobs data – unemployment edgedand their financial situation. down to 8.1% in August, with the job creation at 96,000 for the month, a level not sufficient to 5
  6. 6. QNB Economics economics@qnb.com.qa 06 October 2012support economic growth. In the year up to August, additional funding and further increase the fiscaljob creation averaged 139,000 per month, deficit and debt levels. It is likely that spending cutscompared to an average of 153,000 jobs created in will be put in place; however, it will be at a gradual2011. pace, putting pressure on the sovereign ratings, according to QNB Group.Overall, the economic recovery is yet to show somestrong signs of momentum, while the outlook isequally weak. In such a situation, it is unlikely thatGovernment priorities will be fixed towards fiscaldiscipline, but rather directed more towardseconomic stimulus initiatives. This will require 6