LONDON (Reuters) – It will take time for Britain to win back its triple-A rating, Fitch’s new chief sovereign analyst said on Thursday, stressing it would take more than just a couple of good quarters of growth to prove its recovery was sustainable.
In his first media interview since becoming Fitch’s global head of sovereigns, James McCormack, also said the agency would decide whether to strip the United States of its triple-A grade in the next few months.
Fitch followed rival agency Moody’s in downgrading Britain to AA+ in April, but since then the country’s economy has fired to such an extent that it is now one of the fasting growing in the developed world.
“At the time I think that was the right call to make,” McCormack told Reuters. “Projections that we were working off showed debt peaking at a level higher than we previously anticipated and further out than anticipated.”
“Some of the adjustment that has gone on since then has been a pleasant surprise for everyone … but one of the things we have said about getting triple-A ratings back is that it is going to take some time.”
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He said he certainly would not be rushing to reverse April’s downgrade. While the economy was clearly enjoying a hot run, there were questions over whether it could continue.
“We probably need to see medium-term projections of debt-to-GDP coming down in a sustainable way over a period of time,” he said.
“So one quarter or six-months worth of data is generally not something we are going to change our rating view on.”
U.S. DECISION
The strength of Britain’s upturn over the past six months has been one of the biggest economic surprises of 2013 and economists polled by Reuters this week say the economy will grow next year at the fastest pace since 2007.
The poll forecast the economy would grow around 2.4 percent in 2014, far outpacing most of its European peers. That compares with expected growth of 1.4 percent this year.
McCormack previously headed up parts of Fitch’s emerging market operations and re-joined the rating agency last month after four years at Goldman Sachs.
On the firm’s triple-A U.S. rating, he reiterated he and his colleagues would make a decision in the next few months on what to do, having put it on downgrade-watch back in October.
“It is something we hope to resolve in the first quarter. There has been reasonable positive news this week with the congressional budget committee reaching an agreement and taking that now to congress to get a 2014 budget.”
“The most important date though is actually February 7 when the debt limit of the U.S. government gets re-imposed … so we are looking for an agreement on that issue.”
On the euro zone, he said while the pace of downgrades would slow, the long-running cycle was expected to continue. He singled out Portugal as one of the most interesting situations as it looks to exit from its international bailout program.
On Slovenia, seen by some as the next euro zone member likely to need a bailout, he said Thursday’s news that its banks needed 4.8 billion euros to patch up holes in their financing, was bang in line with Fitch’s expectations.
(Reporting by Marc Jones; Editing by Alison Williams)