China ratings agency warns about rising debt of developed economies

In a report published on Monday, Dagong Global Credit Rating said this year the government debt of some already “highly indebted” developed countries — which accounts for 80 percent of outstanding global government debt — will continue moving toward what it called an “unsustainable state.”

It warned that it now expected an ongoing global credit war as a result, “characterized by surging money supply and currency depreciation,” which would drag the global credit market into “a currency crisis.”

The Beijing-based ratings agency — which announced in October that it was partnering with agencies in the U.S. and Russia in a bid to break the dominance of major ratings names such as Moody's in assessing national and company debt — estimates that the debt of these countries will reach 331 percent of their fiscal revenue (against 328.4 percent in 2012), and 123.5 percent of their GDP (120.9 percent in 2012).

Its report said the accommodative monetary policy of the U.S. Federal Reserve has relied on the dollar's role as an international reserve currency, transferring its debt risk to creditor countries.

In Japan, it added, sovereign credit risk is also on an upward trend, due to its inability to solve its underlying economic problems, with the government there resorting to an extreme loosening of its monetary policy to prop up a flat-lining economy.

Meanwhile, the report added that recessionary fears across the eurozone are unlikely to dissipate in 2013, meaning sovereign debt levels in various European countries will remain.

Dagong's comments came as Moody's Investors Service cut the sovereign credit rating for the United Kingdom on Friday from the highest Aaa to Aa1 — its latest in a series of downgrades of developed countries, since the U.S. lost its triple-A rating in Aug 2011.

“The main driver of our decision to downgrade is that despite considerable structural economic strength, the UK's economic growth will remain sluggish over the next few years owing to the slow growth of the global economy,” said Sarah Carlson, Moody's lead analyst on the UK.

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