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Thursday, September 15, 2016
ALERT: Sovereign Debt #Downgrades at Record Levels
With over three months to go, 2016 looks set to be a record year in terms of the number of sovereign downgrades by Fitch Ratings.
Twenty countries have had their ratings cut so far this year by the major ratings agency. So far, this matches the tally for the whole of 2011 and the most since Fitch started record keeping in 1994.
Furthermore, the number of countries on "negative outlook" — at risk of downgrade — outstrips those on "positive outlook" across the world. In developed markets, for instance, Belgium, Japan and the U.K. are on negative outlook by Fitch.
At a conference in London Tuesday, Fitch's head of sovereigns said that developed countries, particularly European ones, faced unfavorable debt dynamics despite low funding costs.
James McCormack highlighted that real gross domestic product (GDP) growth in the U.K., France, Spain, Portugal, Italy, Greece and Canada was lower than the real effective interest rate, posing challenges to repayment of debt. Meanwhile, Japan, the U.S., France, Spain and the U.K. have primary deficits (defined as the fiscal deficit, which is the difference between government revenue and expenditure, minus interest payments).
Among the challenges facing Europe included "austerity fatigue," euroskepticism (criticism of the European Union or membership of the euro zone), high levels of migration and security concerns, McCormack said.
The U.K., meanwhile, faced a weaker growth outlook and prolonged legal and regulatory uncertainty after its vote to leave the European Union in June. Fitch downgraded the country to AA with negative outlook from AA+ immediately after the referendum.
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