Fitch Downgrades US Credit Rating Outlook from 'Stable' to 'Negative' Following Japan's Move

[Asia Economy Reporter Koh Hyung-kwang] International credit rating agency Fitch downgraded the outlook for the United States' sovereign credit rating from 'stable' to 'negative' on the 31st of last month (local time).

Fitch stated, "Even before the COVID-19 pandemic, the United States' high fiscal deficit and debt were already on an increasing trend," and added, "There is growing concern that U.S. policymakers will fail to strengthen public finances again after the pandemic shock."

However, Fitch maintained the current U.S. credit rating at 'AAA', noting that "compared to other advanced countries, the economic contraction in the U.S. will be less severe."

Fitch projected, "The U.S. economy will contract by 5.6% this year and, assuming a large-scale fiscal policy is implemented next year to avoid further decline, it will recover by about 4%," but also mentioned, "To achieve growth in the 4% range, the U.S. will have to invest the most government finances among AAA-rated countries."

Fitch predicted that if this trend of fiscal depletion continues, the U.S. general government debt will exceed 130% of GDP by 2021. The fiscal deficit is forecasted to be 20% of GDP this year and 11% of GDP next year, respectively.

There was also a point raised that with the U.S. political landscape severely divided ahead of the November presidential election, there is a high possibility that this will hamper the economic recovery momentum. Fitch pointed out, "Political polarization makes bipartisan cooperation difficult, which could hinder responses to long-term fiscal challenges."

Earlier, on the 29th of last month, Fitch downgraded the outlook for Japan's long-term government bond rating from 'stable' to 'negative'. However, Japan's credit rating was maintained at 'A' as before.

Fitch analyzed that the resurgence of COVID-19 in Japan caused a sharp economic contraction. Fitch forecasted, "Japan's fiscal deficit will significantly expand in 2020-2021, leading to a substantial increase in public debt," and predicted, "Japan's economy will record a negative 5% growth this year." Although the growth rate is expected to rebound to 3.2% next year, it is anticipated to fall far short of the pre-COVID-19 levels.

This content was produced with the assistance of AI translation services.