New figures for US GDP growth have been released, and they have disappointed many economists, who predicted between 2.4% and 4.5%. The current quarterly rate, 2.8%, falls between those forecasts, but is lower than the average rate forecasted. This mirrors the IMF forecasts, which state that US GDP will grow only at a 1.8% rate this year.
Bigger news, however, is the latest series of bond rating cuts in Europe. Fitch followed through on its statement that it might cut ratings for Italy and Spain. Following S&P’s lead, they downgraded Spain and Italy from AA- to A and A+ to A-, respectively. Fitch’s ratings are still more optimistic than S&P’s, who dropped Italy to BBB+. In addition, Fitch downgraded Belgium, Slovenia, and Cyprus, and put negative outlooks on all five countries. Fitch noted, however, that Italy forestalled a more severe rating action through its strong commitment to reducing the government budget deficit, recent good bond auctions, and the ECB’s recent actions. Although this is definitely a complication, this isn’t exactly surprising; Cyprus has been close to “junk” status for a while, and as I mentioned before, Fitch said they could drop the Italy’s and Spain’s ratings. Due to this, while it is still likely that there will be some impact on markets, the effect of this downgrade should be minimized.