US fiscal cliff biggest threat, Fitch warns

PARIS - Agence France-Presse

Global growth is below expectations and the risks remain skewed to the downside, said Fitch in a report. AFP photo

Fitch Ratings warned yesterday that so-called U.S. fiscal cliff is the top risk to the world economy, and expressed concern easing market pressure and elections could make the eurozone complacent.

“Fitch has identified the U.S. fiscal cliff as the single biggest, near-term threat to the world economy, given its potential to tip the U.S. into an unnecessary and avoidable recession, with negative implications for global growth,” it said in a report.

The agency warned if talks drag on about the $600 billion in tax increases and spending cuts due to come into force on Jan. 1 then it may review and downgrade the United States’ top AAA rating.

Weeks of talks between President Barack Obama and the Republicans which control the U.S. House of Representatives have failed to produce a deal.

Fitch said its baseline scenario sees a compromise being reached and that it expects to resolve the negative outlook on its U.S. rating next year.

Fitch also expressed concern that “the current easing of market pressure on sovereign bond yields, combined with the specifics of 2013’s electoral calendar, including Italian and German general elections, could induce complacency and slow policy momentum to a crawl” in the eurozone.

It noted that it expected to resolve next year the negative outlook on the AAA ratings of France and non-eurozone Britain. Fitch said global growth has been coming in below expectations and that the risks remain skewed to the downside. For major advanced economies it said it expects only marginal improvement in growth rates, with growth picking up to 1.2 percent next year from 0.9 percent this year.

Fitch said it expects major emerging economies will regain momentum, with Chinese growth rising to 8.0 percent next year, India to 7.0 percent (in the year to March 2014) and Brazil to 4.0 percent.