Mark Jones
LONDON (Reuters) - Fitch's new head of sovereign ratings said the firm is likely to have a clearer idea of how a second presidential term for Donald Trump will affect U.S. credit ratings by the time of its next ratings review this summer. .
James Longsdon, in his first interview since taking office last year, said the ratings of China and France, which are threatened with downgrades, and how Britain deals with fiscal strains will also be in focus.
Fitch downgraded the United States in August 2023, becoming the second major rating agency to cancel Washington's triple-A rating after Standard & Poor's.
The current AA+ score has a "stable outlook," meaning a downgrade or upgrade is unlikely in the short term.
But expectations that Trump will pursue an aggressive tax-cut agenda and trigger a global trade war have raised concerns about a $36 trillion debt that is already growing at $2 trillion a year.
"I think you're going to get some answers," Langston said of the next U.S. ratings review, due in late August.
"Certainly you'll have a chance to see how the legislative process works," he said of the tariffs. "Is it going to be very incremental? Or is it going to be less incremental? I just don't know."
Fitch currently assumes that China's "dutiable rate" - on goods already subject to tariffs but not on all goods - will rise to 60%, to 25% in Mexico and Canada, and to 10% in the rest of the world.
Countries' ratings already take these figures into account, meaning that only more extreme measures, such as imposing tariffs on all imports, would cause sweeping changes.
However, China has been warned of a downgrade, meaning it will inevitably receive the most attention.
"We will be watching the outcome and the response (to the tariffs), particularly the fiscal stimulus," Langsden said.
He added that while more information was needed on tariffs and domestic issues, a positive sign for China was that "there are some green shoots in the real estate market."
france and britain
France and the UK's AA ratings are also under scrutiny for their respective homegrown issues.
France's outlook for October was cut to "negative" and it warned that its inability to rein in spending was rapidly pushing up its debt to 118.5% of GDP.
Paris still needs to work out this year's budget but this week lowered its spending reduction target to 32 billion euros ($32.94 billion) from 40 billion euros in a bid to win support from opposition lawmakers.
"Will there be a new election in June, July?" Langsden said, admitting that it was "hard to say" when a rating decision would be made because of the difficulties.
In contrast, the UK seems to have more "room for development". Doubts are growing despite signs the government will miss its public finance targets and its outlook is "stable".
Fitch, known as the pioneer of the "Big Three", will rate the UK on February 28.
"What we will be looking at is whether they (the UK government) end up missing their fiscal targets and, if so, what steps will they take?" Langston said.
"This is important," he said. "From what we've seen and heard, and as you would expect, I think from the fairly new (fiscal) rules, there seems to be a commitment to make adjustments if necessary."
More broadly, he wants to maintain Fitch's knack for being the first to make big decisions. “If you’re going to make the right decision in the end, you want to be the first.”
(1 USD = 0.9715 Euro)
(Reporting by Mark Jones; Editing by Alison Williams)