The White House and congressional Republicans are expected to resume negotiations Thursday on an agreement to raise the ceiling on the public debt, of 31.4 trillion dollars, with only a week left before a possible start of defaults.
“The attention of many market participants has turned back to the prospects for global economic growth and the future path of US interest rates,” said the report, led by analyst Vittoria Zoli.
“Risks to our base case include whether and how quickly US inflation subsides, and the Federal Reserve’s response to it,” he adds.
Moody’s expects growth to slow “in most emerging markets this year.” Commodity exporters in the Middle East, Africa and Latin America are set to suffer the most, as commodity prices decline on recession fears and concerns about oversupply.
“The rise in commodity prices (with the exception of iron ore) since China’s reopening has been relatively moderate, if not negative,” the report said.
The credit agency, which rates the sovereign debt of 105 emerging markets, added that border economies are at greater risk of default as they cannot resort to international markets.
But it also notes that there is a “certain degree of stabilization,” with the pace of sovereign downgrades slowing relative to the upgrades.
Moody’s recently downgraded Bolivia’s rating to Caa1 from B2, Pakistan’s from Caa1 to Caa3 and changed its outlook to stable from negative, and Kenya’s from B2 to B3. In addition, it put the outlook on Egypt under review for a possible downgrade from stable.
Credit ratings agency DBRS Morningstar put the United States on downward review on Thursday over debt ceiling negotiations in Washington, shortly after a similar warning from Fitch.
“The downward revision with negative implications reflects the risk that Congress will not raise or suspend the debt ceiling in a timely manner,” DBRS said in a statement. “If Congress does not act, the US federal government will not be able to pay all of its obligations.”
The move by DBRS follows a similar move by Fitch, which on Wednesday said its “AAA” rating for the United States was on negative watch, a precursor to a possible downgrade if lawmakers fail to raise the government’s borrowing limit before run out of money, which could be as early as next week.
Another agency, Scope Ratings, earlier this month reviewed the US’s “AA” rating for a possible downgrade due to long-term risks associated with the debt ceiling.
Negotiators for the Democratic president, Joe Biden, and the main Republican congressman, Kevin McCarthy, held what both sides described as “productive talks” on Wednesday to try to reach an agreement that raises the debt ceiling of 31.4 trillion dollars.
However, the June 1 deadline indicated by the Treasury has investors fearing that there is not enough time to close a deal and avoid a catastrophic default.
DBRS, which has a “AAA” rating for the United States, said it still expected Congress to raise the debt limit on time, but warned of the risk of “congressional inaction” as the deadline nears.
He also warned that even in the event of a resolution, the prospect of repeated legislative clashes in a “polarized political environment” could lead to a credit rating downgrade.
With information from Reuters