Moody's Investors Service recently made several significant moves in the world of credit ratings. First, they downgraded the credit rating outlook of the United States from 'stable' to 'negative' [7de79301]. This decision was based on their expectation that the US' fiscal deficits will remain very large, significantly weakening debt affordability. Despite this warning, Moody's acknowledges the resilience of the US economy and the stabilizing effect of the US dollar in global trade. However, investors are advised to monitor changes in interest rates and the government's progress in reaching a long-term spending agreement. Panic-selling or drastic changes in stock portfolios are not recommended at this time. The warning comes as the US has accumulated over $1 trillion in credit card debt and depleted trillions of dollars in savings. Runaway federal spending, including on 'green' energy programs, has led to multi-trillion-dollar deficits and inflation. The typical American family has lost almost $5,400 in annual purchasing power under the Biden administration. Gross interest on US debt in October was $89 billion, equivalent to 40% of all income taxes collected. Investors are becoming concerned about the government's ability to pay its bills.
Meanwhile, Moody's also made a positive move by upgrading Italy's credit rating and outlook [f9c62cbd]. Italy's credit rating was affirmed at Baa3, and the country's outlook was upgraded from 'negative' to 'stable'. This decision was based on Italy's stabilizing economic strength, the health of its banking sector, and the government's debt dynamics. Moody's joined Fitch and S&P Global Ratings in reaffirming Italy's investment-grade rating, providing a boost to Prime Minister Giorgia Meloni's government. Italy's public deficit for 2023 is expected to be 5.3% of GDP, and its public debt is projected to decrease marginally. The Italian economy is slowing down, partly due to the situation in Germany, its main trading partner. Moody's decision is supported by Italy's National Recovery and Resilience Plan.
In addition to these moves, Moody's also maintained Georgia's rating unchanged [23184efc]. Levan Davitashvili, the Minister of Economy and Sustainable Development, emphasized the importance of all three major credit rating agencies keeping Georgia's rating unchanged. This is significant considering the deteriorating ratings in the region due to the geopolitical situation. The sovereign credit rating is a crucial indicator for investor confidence and decision-making. The Ministry of Finance reported that Moody's improved the outlook of Georgia's sovereign credit rating from negative to stable, maintaining the rating at the Ba2 level. The goal is to achieve an investment-grade rating, which would lead to cheaper financial resources and contribute to economic growth in the country.
Meanwhile, foreign investors continue to sell Nigeria's Eurobonds in the international debt market due to weak sovereign ratings from Moody's [9a54d162]. The selling spree is driven by declining macroeconomic indicators, a weak local currency, and a sustained rise in public debt stock. Moody's affirmed Nigeria's credit rating at Caat1, indicating a poor credit standing. The global debt market has seen bearish sentiment towards sovereign Eurobonds, pushing the average yield higher to 10.27%. In contrast, US Treasury yields have rebounded due to strong economic data, reducing the need for a rate cut. German 10-year bond yields fell to 2.38%, while the risk premium on French government bonds decreased to 72 bps. This situation highlights the challenges faced by Nigeria in attracting foreign investment and stabilizing its economy. Additionally, Madagascar has received $658 million in IMF loans to unlock growth [9a54d162].
These moves by Moody's and the offloading of Nigeria's Eurobond by foreign investors underscore the importance of credit ratings in assessing the fiscal health and stability of countries. The US, Italy, Georgia, and Nigeria, four countries with different economic situations, have received varying ratings, reflecting their respective fiscal situations and economic outlooks. It serves as a reminder that fiscal deficits, political stability, and economic strength are crucial factors in determining a country's credit rating. The decisions made by credit rating agencies like Moody's can have significant implications for governments, investors, and the overall global economy.