UK Edition
Moody's issues debt downgrade warning to the entire world
Ratings agency Moody’s has issued a debt downgrade warning to the entire world on fears that political turmoil from Westminster to Hong Kong poses a threat to the economy.
It cut its global sovereign outlook to “negative” from “stable” for 2020, cautioning that “disruptive and unpredictable” politics was worsening the slowdown in growth.
After warning of a possible ratings downgrade on UK sovereign debt last Friday, Moody’s said populism and trade tensions globally raised the risk of bigger economic shocks and the ability of policymakers to counter them.
Britain, Hong Kong, Argentina and South Africa were singled out as countries being monitored closely by the credit ratings agency amid political turbulence.
“There are few silver linings, and a rising risk of more negative outcomes,” it said. “Unpredictable politics create an unpredictable economic and financial environment, prone to volatility in financial and commodities markets and sharp shifts in sentiment.”
It added the fragile global backdrop raised the risk of capital flight that would punish vulnerable countries with weaker credit ratings.
Moody’s slapped a “negative” outlook on the UK last week, meaning that its sovereign debt is in danger of facing a ratings downgrade.
The UK has an AA2 rating, the third-highest grade from Moody’s, after losing its AAA rating in 2013 and being downgraded again in 2017. Fitch and S&P, the two other major credit ratings agencies, already had the UK on their respective “negative” outlook lists.
Moody's warned parties were succumbing to “widespread” pressures to lift public spending ahead of the election “with no clear plan” on how to finance the boost to funding. It added that the pillars of the British state had been weakened by the Brexit paralysis.
The UK’s “new found willingness” to ramp up government spending “has raised some eyebrows overseas”, said Pablo Shah, economist at CEBR.
He added: “The UK looks poised to enter a period of expansionary fiscal policy, with both Labour and the Conservatives proposing to increase government spending significantly.”