Short shutdown period poses risks, but no to ratings: S&P
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Citing no immediate impact on the ratings of the federal government and municipalities should the US shutdown runs for a few weeks, Standard & Poor's Ratings Services warned that sequestration added uncertainty to the US economic outlook.
Sequestration, among other things, has contributed to slower economic growth; the budget debate and discussion of extending the debt ceiling limit have the potential to add a lot more uncertainty, it said.
"Our US chief economist estimates that the shutdown will reduce real GDP (gross domestic product) growth approximately 0.3 per cent for each week it continues. We will monitor developments with the federal government, and if any of these potential risks affect our view of creditworthiness, we will take rating actions we consider appropriate based on our criteria."
Its baseline GDP expectation is about 1.7 per cent and 2.8 per cent in 2013 and 2014, respectively.
In case of a longer shutdown, S&P does not expect automatic downgrades on states.
"We would, however, look closely at any reductions of direct federal funds to states and how each state handled the loss of revenues. A protracted breakdown in federal negotiations could significantly undermine consumer and investor confidence and have significantly long-lasting consequences to the national and the state economies. Therefore, we would also consider the economic impact of federal spending on each state's economy."
