(This Jan. 17 story has been amended again to correct the tipfeler in paragraph 1)
By Marc Jones
LONDON (Reuters) – Fitch’s new head of sovereign ratings says the firm is likely to have a clearer picture of how a second term in office for Donald Trump could affect the U.S. credit rating by the time of the next rating review in the summer.
In his first interview since being appointed last year, James Longsdon said China and France threatened with downgrades would also be a key focus, along with how Britain responds to its fiscal pressures.
Fitch downgraded the US in August 2023, becoming the second major rating agency after Standard & Poor’s to strip Washington of its triple-A rating.
The current AA+ score has a “stable outlook,” meaning a decrease or improvement is unlikely anytime soon.
But expectations that Trump will pursue an aggressive tax-cutting agenda and launch a global trade war are creating much anxiety about America’s $36 trillion debt pile, which is already growing at $2 trillion a year.
“I think you would have some answers,” Longsdon said, referring to the next US credit rating review due in late August.
“You would certainly have a chance to see how the legislative process works,” he said, adding of the tariffs: “Will it be very gradual? Or will it be less gradual? I just don’t know.”
Fitch currently assumes that “tariff rates” – tariffs on goods already subject to tariffs, rather than all goods – will rise to 60% for China, 25% for Mexico and Canada and 10% for the rest of the world.
Country ratings already take those numbers into account, meaning that only something more extreme, like imposing tariffs on all imports, could cause big changes.
China is already on tapering alert, which means it will inevitably get the most attention.
“We’ll see what comes out and what the reaction (to the tariffs) is going to be,” Longsdon said, “particularly the kind of fiscal stimulus.”
On a positive note for China, there were signs of “a few small green shoots in the property market”, although more information is needed on tariffs and domestic issues, he added.
FRANCE AND BRITAIN
AA- ratings for France and Britain are also in focus due to their domestic problems.
France’s outlook was downgraded to “negative” in October, with a warning that its inability to rein in spending was rapidly increasing its debt to 118.5 percent of GDP.
Paris has yet to set a budget for this year, but this week lowered its spending cut target to 32 billion euros ($32.94 billion) from 40 billion in a bid to get opposition lawmakers on board.
“Can there be new elections in June, July?” because of all the difficulties, Longsdon said, admitting it was “hard to say” when a rating decision might be made.
Britain seems to have a bit more “headroom” in comparison. It carries a “stable” outlook, although doubts are growing amid signs the government will now miss its public finance targets.
Fitch, which has earned a reputation as a first mover among the “big three”, is next scheduled to rate the UK on February 28.
“What we will be looking at is whether they (the UK Government) end up missing the fiscal targets, and if so, what are they going to do about it?” Longsdon said.
“That’s important,” he said. “From what we’re seeing and what we’re hearing, there seems to be, as you would expect, I guess from a reasonably new (fiscal) rule, a commitment to adjust if necessary.”
More broadly, he wants to maintain Fitch’s ability to be the first to make big decisions. “If you’re going to make a call that ends up being the right one, you want to be first.”
(1 dollar = 0.9715 euros)
