Scope Ratings Downgrades US Credit Rating Over Political Gridlock

The ongoing Washington gridlock over US government spending, now in its third week, has prompted European credit rating agency Scope Ratings to downgrade the United States' sovereign credit rating by one notch. The Berlin-based firm currently rates the world's largest economy at AA-, having previously warned at the outset of the US government shutdown that congressional deadlock could pose a risk to the US credit outlook. The AA- rating is three notches below the agency's highest rating. "The sustained deterioration of public finances, combined with a weakening of governance standards, are the key drivers behind this rating downgrade," Scope Ratings stated in a Friday release. The statement further noted: "The weakening of governance standards lowers predictability of US policymaking, increases the risk of policy missteps and impairs the capacity of Congress to tackle the country’s structural fiscal challenges." Scope Ratings' assessment of the US is two notches lower than those of the three major rating agencies: Fitch Ratings, Moody’s Ratings, and S&P Global Ratings. Scope Ratings, along with the aforementioned three institutions and Morningstar DBRS, is one of only five rating agencies used by the European Central Bank for collateral assessment, and the only domestic European institution among them. This downgrade from Scope Ratings marks another blemish on US credit history – the public finance trajectory of the US under the Trump administration is now under increased scrutiny. The US has lost its last top rating from the big three rating agencies after Moody’s downgraded the US rating in May of this year. Just last week, the International Monetary Fund (IMF) forecast that total US debt as a proportion of gross domestic product (GDP) would reach 140% in the next four years, a 15 percentage point increase from 2025. This implies that US debt levels will exceed those of all European countries, including fiscally challenged Italy and Greece. As early as 2023, Scope Ratings first changed the outlook on the US rating to 'negative' (inclined to downgrade), which it has maintained since. On October 1st, Eiko Sievert, the analyst responsible for US ratings at the agency, warned that a government shutdown was “credit negative”; while the possibility of a debt default due to political disputes was low, he believed this risk was gradually increasing. The rating downgrade last Friday earned the approval of Moritz Kraemer, the former global chief rating officer of sovereign ratings at S&P Global – the institution that first downgraded the US in 2011. Kraemer, now Chief Economist at LBBW bank in Stuttgart, Germany, wrote on LinkedIn: "This move shows courage and objectivity, in particular by pointing out clearly the decline in US governance standards. Congratulations to Scope Group, you showed backbone."