While a downgrade by S & P and Moody’s are yet only at a threatening stage, the Chinese rating agency Dagong Global Credit Rating Co. has already downgraded the rating of the United States, lowering the rating of "AA-" to "A+".
The Chinese agency, forbidden to practice in the United States, said it expects a long-term economic recession of the world’s largest economy, due to its governance and its economic policies. A U.S growth slowdown to 2.5% in 2011 and 2012 is thus forecasted by the agency. The country’s monetary and fiscal policies will be tightened while the factors of domestic growth will remain low.
According to Dagong, the country’s low interest rates and the quantitative easing of monetary policy have encouraged investment in venture capital, bringing the economy on a path of development relying on a fictitious economy as well as an increase in the risk of a new version of the 2008 financial crisis.
The agency also predicts a U.S fiscal deficit that would continue to represent 10% of the country’s GDP over the next two years. Dependence to debt and investor sentiment towards the domestic economic and budget is a threat on the country’s ability to raise funds, said Dagong.
A few weeks earlier, Dagong Global Credit Rating Co. had also downgraded France and Great Britain’s ratings. Regarding France’s rating, the agency went from "AA-" to "A +" with negative opinion, because of its low domestic demand, high debt, and its fragile financial system.
According to the agency, the French government’s financial situation could worsen in the medium term because of the rise of its debt, and the measures to reduce the deficit would then have a limited margin. Dagong believes the government debt will continue to grow because of massive expenditures and debt costs. Over the next five years, the French government’s deficit will represent between 3% and 5% of the country’s GDP says Dagong.
As for Great-Britain’s long term credit rating, Dagong downgraded it from "A +" to "AA-" due to "negative" economic outlook. According to the agency, the British government’s efforts to push the economy should not help reverse the increase in budget deficits, or reduce the weight of its long-term debt. Dagong also provides a growth rate forecast for the British economy of 1.3% to 1.5% over the next two years, indicating that its budget deficit may exceed its target of 7.9% and reach 9% of the country’s GDP.
