Chinese ratings agency Dagong puts U.S. on watch for downgrade

15:11, July 14, 2011      

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Chinese rating agency Dagong Global Credit Rating Co. said Thursday that it is putting the credit rating of United States on negative watch for a possible downgrade.

Dagong made the move as it expected a long-term economic recession of the world's largest economy caused by its economic governance and policies that are against credit system, the company said.

The country's rating now stands at A+ in domestic and foreign currency on Dagong's list, with negative outlooks on its future. Dagong's rating on the U.S. was downgraded from AA in November last year after the U.S. government announced a second round of quantitative easing.

The agency forecasts that economic expansion will slow to 2.5 percent annually for 2011 and 2012 with monetary and fiscal policies being forced to tighten and drivers of inner growth remaining weak.

The country's low interest rate level and the quantitative easing of monetary policy have encouraged venture capital investment, bringing the economy back on the development track dependent on a fictitious economy, it said. This increases the possibility of a repeat of financial crisis in 2008, it added.

Dagong also projects the country's fiscal deficit will remain at 10 percent of gross domestic product in the next two years.

"To reduce the deficit, government debt will continue to grow and is not likely to drop before 2015," the agency said.

The economy's dependence on debt and investors' concerns over the country's economic and fiscal situation pose threats to the nation's ability to raise funds, it said.

The factors that affect the government's ability to repay its debt are worsening, and it will lower the nation's credit rating if there is no significant improvement in its ability and willingness to repay during the watch period, it said.

Source: Xinhua
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