Our regional and global Credit Conditions Committees—and the research publications we produce—provide financial market participants around the world with an essential resource for identifying and understanding prevailing and potential credit risks.
As an assessment of the external operating environment, our regional and global Credit Conditions Committee forums—covering Asia-Pacific, Emerging Markets, Europe, and North America, which cascade into our global coverage—form an integral part of S&P Global Ratings’ credit rating analysis.
At the CCCs, our senior researchers, economists, and analysts (covering corporates, financial institutions, insurance, structured finance, sovereigns, and U.S. public finance) meet each quarter to evaluate the trends affecting the current and future states of economies, industries, and credit markets. The CCCs identify base case and downside scenarios, and rank exogenous risks. These views are cascaded to our analytical teams to inform their rating deliberations.
Our quarterly and special CCC reports crystallize the Committees’ conclusions, backed by a host of proprietary data, and with an eye toward helping investors make decisions—providing financial market participants around the world with a primary resource for identifying and understanding prevailing and potential credit risks.
Credit resilience amid stormy seas: Despite geopolitical risks increasing and rates remaining high through most of this year, refinancing activity has been strong across most ratings and sectors. Upgrades continue to outpace downgrades, and defaults have started to moderate in recent months. We expect the default rate to fall, but at a slower pace than it rose due to residual strain for the lowest-rated borrowers.
Some grow, some slow: Most economies are set to grow this year, led by strong momentum in the U.S. due to resilient consumer spending and increased productivity. This is partially offset by only a gradual growth rebound in Europe and a sequential slowdown in China, which has been held back by its still flagging property sector. We expect global growth to slow modestly in 2025 as the U.S. moderates, Europe’s pace picks up, and China’s slows further.
Vulnerability amid optimism: Market turmoil in early August proved short-lived, but has revealed market vulnerability to negative headlines, quickly unwound carry-trade positions, and currently rich valuations. Optimism is rooted in assumptions for sustained interest rate cuts ahead, but yields are likely to stabilize at higher long-term levels than pre-pandemicera lows. The current geopolitical landscape and potential trade barriers ahead remain risks.
Overall: Credit conditions look set to steadily improve, but the forthcoming U.S. elections could create some financial market volatility and policy uncertainty.
Risks: Financing costs could remain overly burdensome for some borrowers, especially those at the lower end of the ratings spectrum, if monetary-policy easing is derailed or risk aversion increases. Cost pressures could persist, threatening to hurt credit.
Ratings: The region’s net outlook bias, indicating potential ratings trends, has improved to negative 9.2%. We expect the U.S. trailing-12-month speculative-grade corporate default rate to fall to 3.75% by June 2025.
Overall: We continue to expect that EU growth will pick up gradually as higher real incomes spur consumption and employment remains high. Due to declining inflation, we expect the European Central Bank (ECB) will ease interest rates gradually by 25 basis points (bps) per quarter until the deposit rate will bottom out at about 2.5% in the third quarter of 2025.
Risks: Geopolitical risk remains high because of potential escalations in Ukraine and the Middle East, as well as challenges that could arise if the U.S. election results in policy changes. Additionally, Europe's risk management increasingly focuses on ensuring economic security and a free and fair single market. Principal macro risks include a protracted period of subpar growth, wage pressures that prevent a further decline in inflation, and bouts of volatility if markets overestimate the pace of rate cuts.
Ratings: Our ratings outlooks across banks, non-financial corporates, structured finance, and insurance appear stable for the most part, with issuers benefiting from easing financing conditions. More vulnerable segments include commercial real estate (CRE), with some arrears building in European commercial mortgage-backed securities (CMBS), and U.K. non-conforming and legacy buy-to-let (BTL). European sovereigns remain challenged by high debt levels, while corporates increasingly focus on strengthening the resilience of supply chains and improving their competitiveness.
Between a rock and a hard place. Pains from China's property crisis persist despite government stimulus. The outlook for households and businesses is somber. Consequently, we have lowered the country's GDP growth to 4.6% in 2024 and 4.3% in 2025. While more stimuli may be needed to restore confidence, authorities are holding back to avoid exacerbating China's already high indebtedness. We view risks around China's slowdown as high and worsening.
Shifting gears. While most Asia-Pacific central banks will gradually follow the U.S. Federal Reserve in cutting rates, domestic factors will vary the pace of monetary easing across the region. We expect sharper rate cuts through 2025 and anticipate refinancing conditions will improve, with issuers able to tap offshore markets. We have therefore lowered our assessment of financing risk to elevated from high.
Walking a fine line. Still strong global demand and diversification of manufacturing to outside China generate growth opportunities for export-centric Asia-Pacific countries. With the U.S. and Europe poised for a soft landing, we expect Asia-Pacific's growth to stay at 4.4% over 2024-2025. Meanwhile, the risk of worsening geopolitical tensions could stifle the region's growth momentum through supply chain disruptions and costlier commodities. We have raised the geopolitical risk level to high.
Volatility on the rise. An unexpected global hard landing could spur risk-off sentiment and capital outflows, particularly in emerging Asia. Trade barriers and climate adaptation could raise costs for businesses and undo disinflationary trends. Japan's exit from nearzero rates could risk the abrupt unwinding of carry trades and longer-term shifts in asset allocation. The divide among industries and households may widen, while evolving risks could cause lenders to turn selective. The region's net rating outlook bias remains at negative 2%.
Credit conditions will likely remain supportive for emerging market (EM) issuers as long as a soft landing continues in the U.S. The Federal Reserve's interest rate cuts and the prospects for quicker monetary easing down the road will likely lead to continued improvement in financing conditions for EMs. Moreover, a moderate slowdown in the U.S. economy should support global trade volumes.
Nevertheless, several evolving trends could derail the favorable conditions. Increasing protectionism could disrupt global trade and interrupt monetary easing as inflationary pressures resume. Chinese economic growth could slow further upon continued real estate weakness and growing trade tensions. The Middle East conflict has escalated to a dangerous phase that could further disrupt supply chains and weigh on energy prices.
In our baseline, EM rated issuers should benefit from ongoing favorable financing conditions and economic activity, despite the expected slowdown. Overall, we expect rating activity to remain in positive territory and the default rate to fall.
Our forward-looking credit cycle indicators (CCIs) continue to signal a potential credit recovery in 2025.
The divergence across sectors persists. Recovering earnings and improving market conditions keep momentum positive for corporates, while household credit in most markets is still riding a correction and house prices are soft .
Credit recovery prospects could also differ across geographies as they navigate macroeconomic and geopolitical uncertainties.
