A U.S. government shutdown or failure to raise the debt limit may slow economic activity, which would damage the nation’s credit quality, according to Moody’s Investors Service.

While the ratings company expects the nation’s leaders will avoid a shutdown and increase the debt limit, if it fails to do so “the consequences for the economy and government revenues would be negative,” it said in a report Tuesday.

“Financial market and economic consequences would likely be more severe if the debt limit is not raised than under a government shutdown,” Moody’s said. “The perception that the U.S. government could default on debt servicing if the debt limit isn’t raised could roil financial markets and damage business and consumer confidence.”

Moody’s changed its outlook on the U.S.’s top “Aaa” grade in July to stable from negative. Standard & Poor’s stripped the nation of its top ranking in August 2011, citing in part wrangling over raising the debt limit. Fitch Ratings, which has a negative outlook on ts “AAA” grade, has said its assessment of the country’s credit is taking into account the political debate over raising the debt ceiling. (Bloomberg)