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S&P affirms US at AA+ on monetary, fiscal policy strength to limit virus impact

S&P Global Ratings affirmed its long- and short-term unsolicited sovereign credit ratings on the United States at AA+/ A-1+ and maintained a stable outlook, citing the economy's resilience amid the coronavirus pandemic.

The Federal Reserve's institutional strength, independence and credibility give adequate monetary policy flexibility to the economy, the rating agency said. The economy is also supported by diversity and its status as the issuer of the world's leading reserve currency, it added.

Furthermore, "the rapid economic policy response to the coronavirus pandemic illustrates the ability of the [U.S.'] governing institutions and political leadership to undertake timely and forceful measures during a crisis, as was also seen in 2008," reflecting decentralized and swift decision-making despite intense partisanship during an election year, said S&P Global Ratings. Internal diversity in opinions between the political parties has narrowed in terms of social, economic and foreign policies, it noted.

The rating agency expects GDP to contract 1.3% in 2020, with downturns concentrated in the second and third quarters and a recovery in the fourth quarter. S&P Global Ratings forecasts the government's $2 trillion package will "limit the social, economic and financial damage of the pandemic, which we assume is contained midyear." The economy is expected to rebound in 2021 with an approximate 3.2% expansion, followed by 2.5% growth in 2022.

The unemployment rate in the second quarter of 2020 is projected to exceed 10%, the highest since 1948, but is expected to slide to around 7% by the end of the year. The jobless rate is forecast to fall below 6% in 2021.

S&P Global Ratings expects a contraction in activity to push the economy into deflationary territory in 2020, with inflation falling to negative 0.1% before rebounding to slightly above 2% in the coming three years.

Recession and large fiscal spending would lead to the general government deficit approaching 16% of GDP in 2020, which would fall below 5% of GDP by 2022, the rating agency said. The net general government debt burden is projected to climb toward 100% of GDP in 2020 and stabilize around that level in the coming years.

The stable outlook on the U.S. reflects the view that persistent economic measures regardless of the election outcome will limit the impact of the pandemic. A recovery in 2021 would partly make up for the loss of output and would lead to moderate fiscal improvement, the rating agency noted.

"However, a larger and more prolonged deterioration in public finances beyond our current expectations, without positive signals of future corrective actions, could place pressure on the ratings, leading to a negative action," S&P Global Ratings said.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.