On Wednesday, S&P Global Ratings maintained its 'AA+/A-1+' sovereign credit ratings on the U.S., with a stable outlook reflecting expectations of continued economic resilience and effective monetary policy. The affirmation comes despite high government debt levels and challenges in achieving bipartisan fiscal cooperation.
The stable outlook is underpinned by the U.S.'s institutional checks and balances, strong rule of law, and the free flow of information, which contribute to predictability in economic policies. The resilience of American institutions, its economy, and the size and depth of its financial market sustain the U.S. dollar's status as the world's premier reserve currency and support policy flexibility. However, the comparatively weak fiscal indicators, such as a net general government debt approaching 100% of GDP and interest payments exceeding 10% of revenue, continue to constrain the credit rating.
The U.S. economy's wealth, diversity, and institutional strengths, along with a proactive Federal Reserve, support the nation's creditworthiness. Despite polarization and the approach of national elections, S&P expects the U.S. economy to grow at a rate of around 2% in the medium term, with a forecasted growth of 2.5% for the current year. The labor market remains tight, and real GDP growth is anticipated to average 1.7% from 2025 to 2027.
The U.S. dollar's dominant international reserve currency role and the Federal Reserve's credibility afford the country significant monetary policy flexibility. S&P projects net general government debt to surpass 100% of GDP over the next three years. Inflation, which peaked in 2022, is expected to average 2.8% in 2024 and decline toward the Fed's 2% target in the following years.
The U.S.'s external debt ratio is expected to remain around 375% of current account receipts from 2024 to 2027. Despite this, the U.S. maintains a lower net external liability position, and the current account deficit is projected to stay at approximately 3.0% of GDP in the near term.
S&P anticipates the general government deficit to average around 6.0% of GDP in the coming years, with net general government debt reaching 94% of GDP in 2023 and likely to exceed 100% by 2026-2027. Net interest to government revenue was at 11% in 2023, and this figure is expected to stay near these levels. Nonresident holdings account for approximately one-third of U.S. sovereign debt.
The U.S. continues to face moderate contingent liabilities from the non-deposit-taking financial sector and nonfinancial public enterprises. Entities such as Fannie Mae and Freddie Mac, with assets totaling $8.4 trillion as of December 2023, are considered material in size and are expected to receive extraordinary support from the Treasury if needed due to their critical role in the housing sector.
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