Economy

Fitch upgrades US' outlook to 'stable' from 'negative'

Revision reflecting improved government debt dynamics, propelled by post-pandemic recovery, buoyant revenues

Aysu Bicer  | 09.07.2022 - Update : 10.07.2022
Fitch upgrades US' outlook to 'stable' from 'negative'

ANKARA

Global ratings agency Fitch has raised the US' outlook to "stable" from "negative," saying the revision reflects the government’s improved debt dynamics and increased revenues, which Fitch says it expects to expand by 19% in 2022.

"Fitch now forecasts a decline in the general government debt ratio to 113% of GDP, from 118% in 2021 before beginning to rise again at a gradual pace in 2024," according its latest forecasts on Friday.

A stronger-than-expected economic recovery has led public finances to outperform Fitch's expectations, it said, noting that taxes boosted revenues while pandemic-related spending has wound down.

The global agency projected that government deficit at 5% of GDP, down from an estimated 10.2% of GDP in 2021. "State and local governments continue to perform well, and could result in an even lower general government outturn."

Fitch said it expected US growth of 2.9% in 2022, driven by consumption underpinned by continued labor market strength with solid growth in both employment and nominal wages.

However, it underlined, monetary tightening will cause a slowdown.

"High inflation will also begin to impact consumer spending," it said, adding that the economy will narrow in the second half of 2022 and into 2023, with below-trend growth of 1.5% in 2023 and 1.3% in 2024.

Fitch's 2022 and 2023 annual average inflation forecasts have risen to 7.8% and 3.7%, respectively.

The global ratings agency said it expects the Fed to hike rates at a more aggressive pace to around 3% by year end and 3.5% in the first quarter of 2023.

The country's headline consumer price inflation hit 8.6% year-on year in May, the highest since the early 1980s.

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