Global credit conditions has turned more negative this year amid slower global growth, rising borrowing costs, surging prices for energy and commodities, supply-chain disruption and increased financial market volatility, said Moody’s recently.
The surge in energy and food costs spurred by the invasion of Ukraine is weakening the purchasing power of households, raising input costs for companies and dampening investor sentiment, said Elena H Duggar, Managing Director-Credit Strategy at Moody's.
"Among sovereign debt issuers, debt sustainability will be especially challenging for many frontier market sovereigns as their borrowing costs climb while their economies still have not fully recovered from the pandemic crisis,” she noted.
Still, credit fundamentals remain generally healthy for higher-rated debt issuers, as credit metrics recovered in 2021 and as liquidity remains strong overall, the credit rating agency pointed out.
However, for speculative grade issuers with low free cash flow and a high portion of floating-rate debt, debt affordability, liquidity and refinancing risks are rising, the firm added.
As central banks start to raise interest rates in response to high inflation, financial market conditions are tightening across continents, Moody’s observed.
Moody's proprietary regional Financial Condition Indicators — composite measures of financial and economic activity — show a steady tightening of financial conditions since February.
Currently, financial conditions across the US, UK, euro area and emerging markets were less favourable than historical averages, Moody’s said.
Global credit conditions will continue to tighten as interest rates climb, the firm added.
