Global Credit Risks Rise as Recessions, Gas Crisis Loom

Global Credit Risks Rise as Recessions, Gas Crisis Loom

Global credit risks have risen over the past quarter as the triple threat of rate rises, Europe’s gas crisis and China’s moribund property market show no sign of abating, Fitch Ratings says in its latest Risk Headquarters report.

The projection is anchored on the sustained rate-rising environment, the escalation of Europe’s energy challenges to a full-blown gas crisis and the lack of recovery in China’s property market are all contributing to a challenging macroeconomic environment that is heightening the potential for negative credit outcomes.

It said core risks that would materially heighten credit risks include the failure of the European gas market to balance, and sustained high inflation in the U.S. and Europe through 2023.

This includes the Chinese property market and the extent to which a lack of recovery may spread risks to other sectors, and the progression of the Russia-Ukraine war. It also added to the list the pace of housing market corrections in developed markets, and policy missteps as authorities react to economic and social pressures.

“While our base-case forecasts were revised in September to include recessions in the U.S. and Europe in 2023, the broad-based risk environment remains to the downside. >>> Naira Steadies as Banks Issue Update on FX Purchase

“We have updated the report to factor in the downside revisions to our macroeconomic forecasts made in September and an evolving set of potential risks that would result in a deeper and more prolonged recessionary outlook”, the global rating agency added.

Fitch Ratings’ list of key risks has also been updated to reflect the evolving environment. These include ‘stagflation’, ‘debt overhang and financial instability’, ‘China’s macro and financial risks’, ‘governance and policy risks’, and ‘climate transition.

‘Governance and policy risks’ was added to highlight the growing potential for economic policy missteps amid high inflation and a recessionary outlook.

The tensions between monetary and fiscal policy are particularly notable in several countries, as recently seen in the UK. In addition, heightened geopolitical risk and shifting long-term policy agendas are leading to greater policy uncertainty. #Global Credit Risks Rise as Recessions, Gas Crisis Loom