Scope has completed a monitoring review on the United States of America
Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.
Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.
Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.
Scope completed the monitoring review for the United States of America (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AA/Negative Outlook; short-term local- and foreign-currency issuer ratings: S-1+/Negative) on 17 October 2023.
This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.
Key rating factors
The United States’ AA credit ratings reflect outstanding sovereign credit strengths, such as a wealthy, competitive and diversified economy, the largest economy globally in nominal terms and second largest based on purchasing power parity. In addition, the US benefits from the dollar’s continued role as the preeminent international reserve currency, bringing unrivalled strengths with respect to Treasury’s financing flexibility, and significantly reducing longer-run debt sustainability risk from comparatively higher government debt than many countries of the same rating grade. The United States, furthermore, benefits from sound, transparent and accountable economic institutions, including the globe’s foremost central bank in the Federal Reserve supporting macroeconomic and price stability, alongside one of the globe’s deepest capital markets.
The Negative Outlook assigned for the United States’ rating indicates risk to the rating remaining skewed to the downside. This reflects: i) recurrent risk associated with the debt-ceiling instrument, which have resulted in phases of severe debt repayment distress for the federal government and dependence on last-minute congressional action to ensure repayment of the United States’ debt in full and on time; ii) a long-run rise in political polarisation and resulting governance challenges – as reflected in present paralysis in the House of Representatives and looming risk of a government shutdown; and iii) a persistent weakening of government finances, given a high and rising debt stock and comparatively elevated federal deficits foreseen over the forthcoming years.
Scope estimates economic growth of 2.5% in 2023 before 2.2% in 2024, after 2.1% economic growth last year, reflecting the resilience of the American economy despite persistent inflationary pressure and amid tightening funding conditions. After shrinking to 3.7% of GDP last year amid strong tax revenue growth, the general government deficit is expected to widen to about 8.0% of GDP this year and 7.3% of GDP in 2024, as cuts to discretionary spending from the Fiscal Responsibility Act only partly offset the effects of deficit-raising policies, spending pressures from an ageing population and gradually increasing debt-servicing costs. The United States’ general government debt-to-GDP ratio is seen re-rising moderately this year, to 122.5% (up 1.2 percentage points from 2022 lows), before remaining on a gradually-increasing trend in subsequent years, concluding a forecast horizon to 2028 around 134%.
The ratings could be downgraded in the event of, individually or collectively: i) the conclusion of a rise in risk from the debt limit; ii) weakening of governance, presenting adverse ramifications for the efficacy of government in its management of the economy and resolution of crises; iii) a weakening in the outlook for public finances, such as anticipation of material rises in the government debt ratio beyond the agency’s baseline expectations; and/or iv) evidence of a significantly reduced role for the US dollar as the global reserve currency, leading to attenuated global demand for US treasuries.
Conversely, the Outlooks could be revised to Stable if, individually or collectively: i) congressional or executive action sees the effective overruling, reform or removal of the debt limit – enhancing the United States’ fiscal framework and reducing or eliminating a risk of technical default from the instrument; ii) sustained reduction in political polarisation enhances the efficacy of economic policy setting; and/or iii) economic and fiscal reforms place general government debt-to-GDP on a sustained declining trajectory.
For the updated rating review annex, click here.
The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 September 2023) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Dennis Shen, Senior Director
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