Fitch says top AAA sovereign ratings under pressure in 2013

FITCH RATINGS says the AAA credit rankings on France, the United States and the United Kingdom are likely to come under pressure in 2013.
Posted 1/15/13

LONDON - Fitch Ratings said its AAA credit rankings on France, the United States and the United Kingdom are likely to come under pressure this year due to slow economic growth and high debt levels.

The three nations, which all have a negative outlook from the company, have seen gross domestic product struggle to recover from the global financial crisis while debt levels have increased amid efforts to spur growth. A failure of U.S. lawmakers to raise the nation’s debt ceiling would prompt a “formal review” of its credit rating, Fitch said in a press release today.

“Triple A sovereigns are under threat,” Ian Linnell, Fitch’s analytical group manager, said at a briefing in London as the company published its European Credit Outlook. “Debt-to- GDP ratios are significantly high,” compared with previous periods, he said. “In particular the U.S., France and the U.K. all have negative outlooks, reflecting a combination of a challenging fiscal position and low-to-negligible growth.”

The U.K. also holds top rankings from Moody’s Investors Service and Standard & Poor’s. The U.S. has an Aaa rating at Moody’s and a second-highest rank of AA+ at S&P. France has second-highest ratings at both Moody’s and S&P.

French growth

The French economy will grow just 0.2 percent this year, after expanding 0.1 percent in 2012, according to a Bloomberg News survey of analysts. U.K. GDP will expand 1.1 percent, versus a contraction of 0.1 percent in 2012, while U.S. growth will slow to 2 percent from 2.3 percent, separate surveys show.

President Barack Obama said yesterday he won’t negotiate over raising the debt ceiling. The president warned of economic calamity and stalled payments to Social Security recipients, military personnel and government creditors if congressional Republicans fail to increase the $16.4 trillion debt limit.

The limit was periodically raised since its creation in 1917. Congress increased the debt ceiling to reflect the cost of World War II, and lowered the level after the war ended. Since 1960, Congress has raised or revised the limit 79 times, including 49 times under Republican presidents, according to the Treasury Department.

The U.K. is starting from a weaker position than France, because it has a higher fiscal deficit, Tony Stringer, Fitch’s managing director of global sovereigns, said at today’s briefing. “The one area the U.K. is better off in is the growth outlook. Growth appears to be a challenge for France.”

The U.K. economy will probably expand 1 percent this year while France will grow 0.3 percent, Stringer said.

The 10-year U.S. Treasury yield fell three basis points, or 0.03 percentage point, to 1.82 percent at 2:10 p.m. London time. The rate on similar-maturity U.K. gilts dropped five basis points to 1.99 percent, while France’s 10-year yields declined three points to 2.12 percent.

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