The US factor might be more fear than substance. Within the G10 group of leading industrialized nations, the US is not considered a particularly riskier prospect in spite of its latest political troubles. The world’s biggest economy has slipped to 17th in the rankings, but its score is still higher than at the start of the year.
Most experts have shrugged off concerns about the Federal government shutdown and looming debt-ceiling debate as a political distraction far removed from the sovereign’s repayment abilities. A short-term fix is expected, with only a moderate hit to market sentiment and short-term growth, although getting there has proven to be a disaster.
Most Republicans will not countenance a default and the economy could even see a bounce as confidence revives and public-sector employees return to work, though a delay to monetary policy tapering (until January) now seems likely.
As North American ECR expert Johan Krijgsman says: “The main risks confronting the United States are how to tame the fiscal deficit and climb down the monetary stimulus mountain without suppressing nascent economic growth from the housing, energy and manufacturing sectors. That there is not common cause in the Congress to appreciate this remains hard to understand.
“Ultimately, though, these problems still seem manageable given the flexibility and taxable capacity of the United States, as well as the presumption that common sense will prevail.
“In Europe, by contrast, the unwillingness to see the euro weaken, a banking sector still in need of repair, weak political resolve on budget issues and individual country economic prospects heading in different directions, makes for a trickier set of problems to resolve.”
Indeed, greater concerns are reserved for 21st-placed France, with its fiscal targets missed and the economy remaining sluggish, as well as for Aaa-rated Sweden, in fifth spot, where a moribund economy and a government relaxing fiscal policy with tax cuts ahead of next year’s parliamentary election are gnawing away at the sovereign’s gold-plated creditworthiness.
Both countries have seen their scores slip the most (by 0.7 points each since June), within a group where Germany is flat-lining as it awaits the formation of a new government, and Japan is still edging higher on the back of its Abenomics-induced rebound.
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