Dagong Ratings Agency Warns About Rising Debt

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Source: China Daily – Ratings agency warns about rising debt

Notable excerpts:

Rising levels of sovereign debt in developed countries are posing a series of threats to emerging economies, China’s leading credit rating agency has warned.

In a report published on Monday, Dagong Global Credit Rating said this year the government debt of some already “highly indebted” developed countries – which accounts for 80 percent of outstanding global government debt – will continue moving toward what it called an “unsustainable state“.

It warned that it now expected an ongoing global credit war as a result, “characterized by surging money supply and currency depreciation“, which would drag the global credit market into “a currency crisis“.

Its report said the accommodative monetary policy of the US Federal Reserve has relied on the dollar’s role as an international reserve currency, transferring its debt risk to creditor countries.

In Japan, it added, sovereign credit risk is also on an upward trend, due to its inability to solve its underlying economic problems, with the government there resorting to an extreme loosening of its monetary policy to prop up a flat-lining economy.

Meanwhile, the report added that recessionary fears across the eurozone are unlikely to dissipate in 2013, meaning sovereign debt levels in various European countries will remain.

Dagong said it believed that measures to maintain high gross debt levels through continuously depressing interest rates and injecting liquidity cannot lead to a powerful expansion of a debt-ridden real economy.

Debtors are extremely sensitive to interest rates and new credit risks will surface if rates continue to rise,” it said.

Confronted with a credit war, emerging economies and low-income countries had again resorted to loosening monetary and fiscal policies, it added, in order to prevent a deterioration of their regional economies, which could also pose new challenges to sovereign credit risk.

The ratio of China’s government debt as a percentage of its GDP reached a peak of 33.5 percent in 2010, and will gradually fall to 24 percent in 2014, according to Dagong estimates.

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