S&P sees small, but growing, risk of US fiscal cliff

Standard & Poor's on Thursday said it sees an increasing chance that the U.S. economy will go over the so-called fiscal cliff next year, though policymakers will probably compromise in time to avoid that outcome.

Analysts at the credit rating agency now see about a 15 percent chance that political brinkmanship will push the world's largest economy over the fiscal cliff.

"The most likely scenario, in our view, is that policymakers reach sufficient political compromise in time to avoid most, if not all, potential economic effects of the cliff," S&P analysts wrote.

The automatic spending cuts coupled with significant tax increases in January could take an estimated $600 billion out of the U.S. economy and push it into recession, according to the non-partisan Congressional Budget Office's assessment of the fiscal cliff.

After the re-election of President Barack Obama and the return of a Republican majority in the House of Representatives, markets have fretted that policymakers will not reach an agreement in time to avert most of the cliff's economic consequences. Stock indexes have slid as investors flocked to safe-haven U.S. Treasuries.

Last year S&P cut the U.S. rating from the top level of AAA to AA-plus, citing the acrimonious fight in Congress over raising the country's debt ceiling.

The United States has fared better with Moody's Investors Service and Fitch, which have held their ratings at Aaa and AAA, respectively.

But the outlook for all three ratings is negative, which means the country could see more downgrades in the medium term.