April 19, 2011
US budget deadlock could hit Asian economies
SEOUL : Asian economies would feel little impact from Standard & Poor's downgrade of its US debt outlook but a failure by Congress to reach a budget deal could have more serious repercussions, analysts said.
The ratings agency Monday challenged Washington's gold-star "AAA"-rated standard by slapping it with a "negative" outlook, down from "stable", and warned that politicians seemed unable to agree a plan to reduce the shortfall.
Stock markets around the world tumbled on the news, with the Dow slipping 1.14 percent and the main indexes in London, Frankfurt and Paris all losing more than two percent, while Tokyo, Hong Kong, Sydney and Shanghai were also well down.
Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight, stressed the importance of a US budget deal for Asia, where many governments and central banks hold large amounts of US government debt.
"It is crucial that the US Congress agrees on a roadmap and timetable for medium-term fiscal consolidation to reassure Asian governments about the stability of their existing investments in US government debt as well as to convince them to continue buying new holdings," Biswas said.
"Given the importance of the US as the world's largest economy, this is also essential for underpinning the stability of the global financial system."
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