According to a Reuters report, the European credit rating agency Scope Ratings recently released a report downgrading the US sovereign credit rating from "AA" to "AA-". The reasons cited are the continuous deterioration of the US public finances and a decline in government governance standards.
The agency stated that the persistent deterioration in US public finances is mainly reflected in sustained high fiscal deficits, rising interest expenses, and limited budget flexibility. These factors collectively drive the continuous increase in government debt levels. The report predicts that without substantial reforms, the ratio of US government debt to Gross Domestic Product (GDP) will rise to 140% by 2030, significantly higher than most sovereign nations. The International Monetary Fund (IMF) had previously also forecast that the total US government debt as a percentage of GDP would reach 140% within the next four years, a sharp increase of 15 percentage points from 2025. This means the scale of US debt will surpass that of all European countries, including Italy and Greece, which have faced fiscal difficulties.
The report pointed out that the decline in government governance standards is also a significant reason for the downgrade. Scope Ratings believes that the increasing concentration of US executive power, repeated government disregard for court orders, challenges to judicial authority, and circumvention of congressional oversight have reduced the predictability and stability of policymaking, increasing the risk of policy errors. The uncertainty demonstrated by the US in tariff negotiations with major trading partners serves as an example.
The agency also stated that the outlook for the US rating is "stable," with risks of an upgrade or downgrade broadly balanced over the next 12 to 18 months. The report emphasized that downside risks include continuously rising debt levels and the potential significant erosion of the US dollar's status as the global reserve currency, which could lead to a decline in global demand for US Treasury bonds.
Currently, the US government "shutdown" impasse persists. The negative impacts of the "shutdown" on various aspects of society are becoming increasingly prominent. Over 500,000 federal employees are unable to receive their full salaries on time, forcing many to queue for relief aid; severe staff shortages have caused flight delays or even cancellations at many airports, also affecting airport operations; multiple state governments have warned that hunger issues could rise sharply if federal government funding remains disrupted.
Furthermore, due to the government "shutdown," relevant US federal government agencies cannot obtain recent economic development data from both within the US and abroad, making it impossible to make clear judgments about the US economic situation and related policies in the near future. Under these circumstances, it means that future US economic policy has entered "uncharted waters," which could have very serious potential negative impacts on the subsequent development of the US economy. Morgan Stanley noted in a report that if the government "shutdown" continues, the Federal Reserve might lack the necessary basis for decision-making at its interest rate meeting at the end of October.
Mark Zandi, Chief Economist at Moody's Analytics, stated that if the "shutdown" extends into the holiday shopping season between Thanksgiving and Christmas, an economic recession could become a real threat, as it would impact already fragile consumer, business, and investor confidence.
