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Non-Rating Action Commentary


NORTH AMERICAN 2023 SOVEREIGN OUTLOOK CLOUDED BY RECESSION, INFLATION AND RISING
RATES

Fri 16 Dec, 2022 - 11:40 AM ET



Related Content: North American Sovereign Outlook 2023

Fitch Ratings-New York-16 December 2022: A mild recession, stubborn inflation
and tighter financial conditions are the main features of the 2023 deteriorating
sector outlook for the U.S. and Canada. Fitch Ratings has lowered its forecast
for growth in the U.S. to just 0.2% in 2023, after lower-than-expected growth in
2022 of 1.9%. The Canadian economy retains more momentum but will follow a
similar path with growth slowing to 0.6% in 2023 after a solid posting of 3.5%
in 2022.
We expect inflation will begin to slowly dissipate over 2023 but remain well
above policymakers’ target. In response, we expect the Federal Reserve to
increase its policy rates to 5% by 1Q23 while the Bank of Canada hiked its rate
by 50 basis points to 4.25% in December. Both are expected to maintain these
levels throughout 2023 before beginning to cut rates in 2024.
Fitch affirmed the U.S. sovereign rating at ‘AAA’ and revised its Outlook to
Stable from Negative in July 2022 on robust revenue growth and a slight fall in
the debt-to-GDP ratio. Fitch affirmed Canada at ‘AA+’ with a Stable Outlook in
June 2022
Higher interest rates will push up the interest burden for both countries, with
a greater impact on the U.S. The new year heralds divided government and
gridlock with Republicans in control of the House of Representatives, possibly
setting up contentious debates over spending, appropriation bills and the debt
ceiling limit.
Governments will pay more to borrow, although financing needs are declining.
Disinflation and an economic slowdown will mean lower revenue growth in the U.S.
and Canada, where the housing markets are slowing in response to a sharp
tightening in conditions. The Canadian economy is vulnerable to a housing market
correction, given the high level of household borrowing and the sharp rise in
house prices during the Covid-19 pandemic.
Contact:

Richard Francis
Senior Director, Co-Head of the Americas
1-212-908-0858
Fitch Ratings
Hearst Tower 300 W. 57th Street New York, NY 10019

Media Relations: Elizabeth Fogerty, New York, Tel: +1 212 908 0526, Email:
elizabeth.fogerty@thefitchgroup.com

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Sovereigns
North America
Canada
United States


ENTITIES

 * Canada
 * United States of America





ISSUER CONTENT

 * North American Sovereign Outlook 2023
 * EMs Closer than DMs to Restoring Pre-Pandemic Fiscal Positions
 * Sino-US Tensions Here to Stay but Decoupling Advances Slowly
 * Sino-US Tensions are Here to Stay
 * US Governance, Policy Risks in Focus as Divided Government Looms
 * Central Bank Losses May Add to Sovereign Fiscal Pressures
 * United States of America
 * Higher Debt Leaves Sovereigns Tough Choices as Recession Risks Rise
 * Fitch on Canada Series 2 (Canadian Housing Market Slowdown Rating
   Implications and Covered Bonds Update)





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MEDIA CONTACTS

Elizabeth Fogerty
New York
+1 212 908 0526
elizabeth.fogerty@thefitchgroup.com

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