Fitch retains 'AAA' rating for US; outlook negative

Fitch has maintained the top notch 'AAA' rating on the United States even as it maintained the credit outlook at negative citing risks associated with political disagreement over ways to reduce ballooning deficit. 'AAA' is the highest investment grade rating.
    
The global rating agency said affirmation of the coveted rating was on account of its highly productive, diversified and wealthy economy.
   
It is also due to exceptional financing flexibility afforded by the global reserve currency status of the dollar, among others.
    
"Fiscal and macroeconomic risks emanating from the financial sector are moderate and diminishing. The US sovereign credit profile also benefits from the respect for property rights, the rule of law and high degree of political and social stability," Fitch said in a statement on Tuesday.
    
However, Fitch has maintained the 'negative' outlook on the US mainly due to risks associated with the lack of broad public and political agreement on how to secure deficit reduction.
    
Including the debt of state and local governments as well as that of the federal government, gross general government debt is equivalent to 103% of the American GDP, it said.
    
"The uncertainty over tax and spending policies associated with the so-called 'fiscal cliff' weighs on the near-term economic outlook. A 5% of GDP fiscal contraction in 2013 implied under current law would, if permanent, push the US into an unnecessary and avoidable recession," Fitch noted.
    
In the wake of US Congressional Joint Select Committee on Deficit Reduction's failure to reach an agreement, Fitch had the rating outlook to negative in November 2011.
    
Fitch noted the US government was likely to at least temporarily defer all or some of the tax increases and spending cuts under current law.
    
According to the rating agency, the American economic recovery is expected to gradually accelerate into 2013 and 2014. In the medium term, the GDP is projected to expand at an average rate of about 2.5%.