Fiscal Cliff Impasse Won’t Change US Sovereign Rating: S&P

 @moranzhang on December 28 2012 4:35 PM

Standard & Poor's Ratings Services said Friday it does not expect negotiations over the so-called fiscal cliff to have an impact on the sovereign credit ratings of the U.S. government.

The ratings agency said it believes the same general conditions that led it to strip the U.S. of its prized AAA rating in August of last year continue to exist. U.S. debt currently carries an AA-plus rating.

"Our existing negative outlook on the U.S. rating speaks to the risk of a deliberate further loosening of fiscal policy, for example, through a material weakening of the Budget Control Act of 2011 without compensating measures," S&P said in a statement.

If lawmakers reach no agreement, the Congressional Budget Office has estimated that the government will receive additional revenue and will forgo additional annual expenses of more than $500 billion, or 3 percent of 2013 gross domestic product, according to S&P.

Such a sharp, unplanned fiscal correction, however, would likely result in the U.S. economy contracting by 0.5 percent in 2013 and the country's unemployment rate rising by about 1.4 percentage points, to 9.1 percent at the end of next year from 7.7 percent at present, the CBO has forecast.

In any case, S&P views fiscal consolidation enacted by default and centered on short-term measures -- as opposed to a package enacted by bipartisan agreement and centered on long-term drivers of fiscal deficits -- to be vulnerable to reversal, especially in the first few weeks of the new year.

“If lawmakers reach an agreement this weekend, we believe it will likely be consistent with our previous assumptions that the tax cuts of 2001 and 2003 are extended for some period and additional measures are insufficient to place the U.S. medium-term public finances on a sustainable footing,” S&P said.

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