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, said Fitch Ratings recently.
While Fitch’s base-case forecasts were revised in September to include recessions in the US and Europe in 2023, the broad-based risk environment remains to the downside, the credit rating agency noted.
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, Fitch pointed out.
Core risks that would materially heighten credit risks include the failure of the European gas market to balance, sustained high inflation in the US and Europe through 2023, the Chinese property market and the extent to which a lack of recovery may spread risks to other sectors, the progression of the Russia-Ukraine war, the pace of housing market corrections in developed markets, and policy missteps as authorities react to economic and social pressures, Fitch observed.
According to the firm, its list of key global credit risks has also been updated to reflect the evolving environment.
These include ‘stagflation’, ‘debt overhang and financial instability’, ‘China macro and financial risks’, ‘governance and policy risks’, and ‘climate transition, the firm said.
‘Governance and policy risks’ was added to highlight the growing potential for economic policy mis-steps amid high inflation and a recessionary outlook, Fitch added.
The tensions between monetary and fiscal policy are particularly notable in several countries, as recently seen in the UK, Fitch pointed out.
In addition, heightened geopolitical risk and shifting long-term policy agendas are leading to greater policy uncertainty, the firm added.
