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China's structural reforms will slow the pace of its debt build-up but will not be enough to arrest it, and another credit rating cut for the country is possible down the road unless it gets its ballooning credit in check, officials at Moody's said.
The comments came two days after Moody's downgraded China's sovereign ratings by one notch to A1, saying it expects the financial strength of the world's second-largest economy to erode in coming years as growth slows and debt continues to mount.
In announcing the downgrade, Moody's Investors Service also changed its outlook on China from "negative" to "stable", suggesting no further ratings changes for some time.
China has strongly criticized the downgrade, asserting it was based on "inappropriate methodology", exaggerating difficulties facing the economy and underestimating the government's reform efforts. (Reuters – Continue Reading)
Group of Seven leaders are preparing to sign off on a substantially pared-down statement at the close of their meeting, an indication of persisting divisions on climate change and trade between Donald Trump and the six other leaders.
The final communique -- 32 pages last year -- traditionally outlines the common positions of G-7 leaders on the economy and other global issues requiring joint action by the world’s leading powers. This year’s statement is on pace to be one-third the length of last year’s in Japan, according to three officials from delegations involved in the preparation.
The two-day summit at the seaside Sicilian town of Taormina presents a new dynamic for the world’s leading industrial nations, with Trump and three other leaders attending their first G-7. The new era is set to deliver a different type of communique, with one official saying that it could be as few as six pages. Another described the brevity as a positive development that allows focus and avoids the document ballooning out of control. (Bloomberg – Continue Reading)
The US administration's 2018 budget proposals give no indication of how it plans to address the country's longer-term fiscal vulnerabilities, Moody's Investors Service said in a report today. If the budget were to be implemented in its current form - which Moody's does not expect - the US fiscal position would not improve; it would worsen more quickly than the rating agency currently expects.
"The future direction of the US credit profile will rest mainly on the evolution of its fiscal strength, which will in turn be largely determined by trends in federal deficits and debt, particularly over the medium-term as the cost of entitlements rises," said Sarah Carlson, a Moody's Senior Vice President and the report's co-author. "Overall, the budget proposal's significance lies mainly in the absence of any indication of how those longer-term fiscal vulnerabilities will be addressed."
While the budget is formally the responsibility of Congress, the White House's 23 May budget document signals the administration's policy priorities. It is not known which, if any, of the proposals Congress will ultimately agree to.
However, Moody's expects that some unfunded tax cuts will ultimately be implemented, which is likely to bring forward the weakening in US fiscal strength and the country's credit profile that the rating agency expected to start from the end of this decade. (Moody’s – Continue Reading)
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