Reuters: Financial Services and Real Estate: UPDATE 1-S&P says US to avoid 'fiscal cliff', risks remain

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UPDATE 1-S&P says US to avoid 'fiscal cliff', risks remain Jun 8th 2012, 21:30 Fri Jun 8, 2012 5:30pm EDT NEW YORK, June 8 (Reuters) - Standard & Poor's said on F riday it expects U.S. lawmakers to set aside their differences to prevent a combination of tax hikes and spending cuts from hurting the economy in early 2013. The rating agency affirmed the AA-plus rating of the world's biggest economy, but cautioned that its outlook remains negative. That means the country could face a new downgrade in a six- to 24-month time frame, extending out to 2014. "One thing we do expect Republicans and Democrats to agree on - given an unemployment rate of about 8 percent and continued risks to the U.S. economic recovery - is avoiding sudden fiscal adjustment," the agency said in a statement. The United States lost its top-tier AAA credit rating from Standard & Poor's last August. That cut came in the wake of a bruising fight in Congress over lifting the government's debt limit. "We expect that a sudden fiscal adjustment could occur if all current tax and spending provisions, set to either expire or take effect near the end of 2012, go forward in accordance with current law," S&P said on Fri day. Bush-era tax cuts are to expire on Dec. 31, deep, automatic spending cuts roll out on Jan. 1, 2013, and U.S. borrowing authority must be raised early in the year to avoid the risk of default. A stalemate over how to avoid a hit to growth - the scheduled tax hikes and spending cuts have been dubbed the 'fiscal cliff' - would likely push the U.S. economy into recession in the first half of next year, the Congressional Budget Office warned last month. S&P said the U.S. economy still faces "significant" risks, adding that "we believe the risk of returning to recession in the U.S. is about 20 percent." In affirming the rating, S&P cited the resilience of the economy, its monetary credibility and the dollar's status as the world's key reserve currency. The United States is rated AAA by Fitch Ratings and Aaa by Moody's Investors Service, both with a negative outlook. Earlier this week Fitch said it would cut its sovereign credit rating for the United States next year if Washington cannot come to grips with its deficits and create a "credible" fiscal consolidation plan. Link this Share this Digg this Email Reprints

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