"Uncle Sam" - To "B" or not to "B"

Credit Guarantee, South Africa's largest insurer of corporate debtors, has reviewed its rating on the largest global economy and maintained its highest commercial and political rating of '1A' on the United States.

"US private sector job growth remained positive in May, extending a long-running pattern of augmenting employment," says Luke Doig, Senior Manager Economics at Credit Guarantee.

"Despite the fallout from the bad debts in the sub-prime mortgage markets, Federal Reserve Chairman Bernanke says these are manageable, with incomes and employment supporting markets.  Certainly, there will be a distinct slowdown in economic activity in 2007, but into 2008 a recovery is expected."

The key risk according to the Organisation for Economic Cooperation and Development (OECD) is whether the slowdown in the US economy turns out to be more broadly based. However, both the International Monetary Fund and the OECD feel that the pick-up in Japanese and European growth will allow the global expansion to remain above trend, albeit moderating, thereby reducing inflationary pressures.

'Perhaps the greatest negative is the large drain on resources and channelling of money into the war effort but, on the other hand, this very aspect creates a massive amount of jobs, uses a huge amount of commodities etc.   Maybe the human cost, the cost on lives; medical insurance and rehabilitation could be viewed as a greater negative factor," comments Doig.

Taking into account the battle between the Democrat and Republican lobbies, this in fact could be viewed as a very positive development, as the one literally becomes the conscience of the other and it could hardly be cause for economic concern.

"As such, we would hesitate to say that the US economy is likely to falter in the near to medium term, hence our highest possible rating is maintained," concludes Doig.