1. QNB Economics
economics@qnb.com.qa
06 October 2012
Debt and economic concerns will put pressure on
US ratings
The continuing slide in the US fiscal position, along agency Moody’s, mentioned the possibility of
with a lacklustre economic performance, will likely lowering the US government bond rating to Aa1 in
impact its sovereign ratings in 2013, according to 2013, from the current Aaa.
QNB group analysis. The US federal debt to GDP,
The ratio of US federal debt to GDP has increased
fiscal deficit, and economic growth and outlook are
from 40% in 2008 to 68% in 2011, and is estimated
factors that are impacting the ratings outlook. In a
to reach 73% by year-end 2012, according to the
special comment earlier in September 2012, ratings
US Congressional Budget Office (CBO). This will be
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2. QNB Economics
economics@qnb.com.qa
06 October 2012
the highest level since 1950. In absolute terms,
Fe de ra l Debt (Actua l) CBO Alte rn a tive
CBO Ba se lin e
under the CBO’s baseline scenario (including
spending cuts), that would translate into US$14.5
trn of federal debt by 2022, from US$11.3 trn as at 00 02 04 06 08 10 12 14 16 18 20 22
Source: US Congressional Budget Office and QNB Group
year-end 2012. In addition to federal debt, overall
analysis
government debt includes around US$4.5 trn of
Growing debt means that overall government debt
securities held by federal trust funds and other
topped US$16 trn (103% of GDP) in September
government accounts.
2012, nearly reaching the ceiling of US$16.4 trn,
US Federal Debt to GDP (2000-22)
which was set in August 2011. In comparison, UK’s
(% of GDP)
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3. QNB Economics
economics@qnb.com.qa
06 October 2012
with a rating of Aaa has a government debt to GDP elections slated for November 6th, Government
at about 86%. efforts to reduce the deficit through spending cuts
and tax increases, will most likely come into effect
With current estimates putting incremental only in 2013 at the earliest.
government borrowing at over US$100 bn a month,
Meanwhile, economic indicators show mixed
the debt limit is likely to be reached by year-end.
signals, with signs of a weak recovery.
The CBO estimates that the US government deficit
Key US Economic Indicators
will total US$1.1 trn (7.3% of GDP) in the current
fiscal year, which ended on September 30th. This is
the fourth consecutive fiscal deficit and shows no
signs of improvement in the short-term. With US
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4. QNB Economics
economics@qnb.com.qa
06 October 2012
was owing to a slowdown in personal consumption
Consumer confidence index
80 Purchasing managers index 800
Housing starts (’000, right axis)
75
750
70.3
and fixed investment.
70 69.5
700
65
61.3
60 650
Among the positive signals of economic activity,
55
51.5 600
53.1 49.6
50
was the national purchasing managers index (PMI),
550
45
40 500
Aug Oct Dec Feb Apr Jun AugSep
11 12 12
a benchmark indicator of corporate activity. The
Source: Global Insight and QNB Group analysis
While US real GDP growth in the first quarter was PMI rebounded in September to 51.5. In August the
estimated at 2.0%, real GDP estimates for the PMI was at 49.6, slightly below the 50-point mark,
second quarter of 2012 were revised downwards which is viewed as the dividing point between
to 1.3%, from 1.7%. The deceleration in real GDP expansion and contraction.
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5. QNB Economics
economics@qnb.com.qa
06 October 2012
Another indicator is the conference board’s There has also been a recovery in the housing
consumer confidence index, which increased in market, as low prices and interest rates have
September to 70.3, from 61.3 in August. The index encouraged home buyers. The number of housing
rebounded to levels not seen since February earlier starts peaked in June 2012 at 754,000 - a level not
this year, as consumers were more positive in their seen since October 2008. Although housing starts
assessment of current conditions, mainly the job contracted in July to 733,000, they recovered
market, and much more optimistic about the strongly in August, rising to 750,000.
outlook for the business environment, employment
Looking at the jobs data – unemployment edged
and their financial situation.
down to 8.1% in August, with the job creation at
96,000 for the month, a level not sufficient to
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6. QNB Economics
economics@qnb.com.qa
06 October 2012
support economic growth. In the year up to August, additional funding and further increase the fiscal
job creation averaged 139,000 per month, deficit and debt levels. It is likely that spending cuts
compared to an average of 153,000 jobs created in will be put in place; however, it will be at a gradual
2011. pace, putting pressure on the sovereign ratings,
according to QNB Group.
Overall, the economic recovery is yet to show some
strong signs of momentum, while the outlook is
equally weak. In such a situation, it is unlikely that
Government priorities will be fixed towards fiscal
discipline, but rather directed more towards
economic stimulus initiatives. This will require
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