Moody’s Investors Service maintains a stable rating on the United States, notwithstanding a significant deterioration in the U.S. government’s debt position, the rating agency said Wednesday.

Moody’s said the U.S. continues to demonstrate the attributes of a Aaa sovereign, including a diverse and resilient economy, strong government institutions, high per capita income, and a central position in the global economy. “Moody’s expects that, because of these factors, U.S. economic strength will emerge after the crisis without major impairment,” said Moody’s vice president Steven Hess, author of the report. “The global role of the U.S. currency also contributes to the ability of the economy and government finances to rebound.”

He said the government balance sheet has been weakened by the combination of efforts to stabilize the financial system, the effects of the sharp economic recession on federal finance, and the $787 billion federal stimulus package passed earlier this year. The result has been much higher debt ratios that may persist for some years to come, it noted.

Moody’s said that these ratios are also deteriorating in most other advanced economies due to the global recession. And it stressed that the level of debt is less important than the government’s balance sheet flexibility, which Moody’s believes is still high in the U.S.

Despite a worsening government balance sheet, Moody’s cites other factors in support of the Aaa rating. “The current economic downturn has only temporarily altered America’s productivity dynamic, and productivity has risen in the recession period, as is typical,” said Hess. “U.S. labor market flexibility has been a key factor in this trend.”

A higher rate of U.S. population growth through 2025 relative to other advanced economies will also contribute to continued economic growth — and government revenues, the rating agency noted.

“While our outlook for the U.S. rating is stable, a reassessment of the long-term growth prospects of the economy and the ability of the government to return to a sustainable debt trajectory could put negative pressure on the rating in the future. How the economy and fiscal policy fare after the recession will be key,” said Hess. He added that, over the longer term, contingent liabilities related to Social Security and Medicare programs could also pressure the rating.

IE