The S&P Global Ratings agency has reaffirmed the United States’ sovereign ratings at ‘AA+/A-1+’ with a stable outlook, despite anticipated challenges in economic growth and fiscal management. The agency’s new 5-year forecast shows the US economy inescapably slowing down and taking our inflation-adjusted real GDP growth down with it. From that baseline, they assume an average annual increase of 1.7% in 2025 and of 1.6% in 2026. Although this slowdown is forecasted, the economy is expected to recover slightly, achieving an approximate growth rate of 2% thereafter.
That along with the look at the US economy shows the US is still in serious fiscal trouble. The country’s fiscal shortfall is projected to stay level or even increase slightly in the years ahead. There will be no meaningful advancement or reliable decline. Taken together, these trends should ring alarm bells over the sustainability of the government’s debt. We project it will be close to 100% of GDP due to rising nondiscretionary interest and outlays related to an aging population.
Economic Growth Projections
The S&P report underscores a dramatic reversal in the long-term trendline of U.S. GDP growth. The drop to 1.7% in 2025 represents a dramatic departure from past rates of growth. She noted that this move comes amid increasing fears that the economy is losing its resilience to avoid the impacts of persistent crises. After a stretch of stagnation growth, many economists expect a return on the order of 2%. This implies that we could start to see some growth return after 2026.
Experts note that this anticipated deceleration is influenced by multiple factors, including global economic conditions, domestic consumption patterns, and potential shifts in fiscal policy. As the economy grapples with these challenges, it is crucial for policymakers to implement strategies that foster growth while maintaining fiscal responsibility.
Fiscal Deficit and Debt Concerns
The fiscal and budgetary environment in the United States is still very challenging. The S&P Global Ratings agency has indicated that outcomes related to the country’s fiscal deficit are unlikely to improve meaningfully over the next several years. This stagnation is occurring against the backdrop of an unchanged fiscal outlook. It signals that hard work is still needed, but no serious threat of slipping back into reverse.
The future debt-to-GDP ratio is approaching almost 100% for two main reasons. Nondiscretionary interest and other aging-related expenditures are both increasing structurally, further accelerating this trend. These components represent a persistent fiscal drag on the federal budget, leaving little room to respond to a future economic outlook or national emergency.
The ratings have held steady in the face of fiscal headwinds. This is a sign that markets have faith in the US government’s long-term capacity and willingness to handle its obligations, deficits notwithstanding. The case for sound fiscal stewardship grows stronger the higher debt levels rise.
Currency Market Overview
Along with positive economic indicators, currency market activity has displayed bear minimal volatility lately. The Dollar Index (DXY) trades little changed at 98.18, highlighting the recent calm in major currency cross rates. Key currency pairs exhibit modest percentage changes. For instance, USD to EUR remains unchanged at 0.00%, while USD to GBP and USD to JPY reflect minor increases of 0.04% and 0.06%, respectively.
Additionally, volatility across other currencies has exposed some fascinating dynamics at play. Against many of its developed world peers, the New Zealand dollar (NZD) has been a rock star. It cashed in at 0.10% gain vs USD and 0.11% hike vs the EUR. By looking at these small variations on a wide range of currency pairs, we can better understand the underlying economic sentiment and investor confidence.
As exchange rates change from hour to hour in these volatile times, analysts warn that we need to be watching these trends very carefully. They argue that currency stability should be a centerpiece in determining economic direction going out.