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.
The descent in policy interest rates and soft landings in many major economies may deliver on the promise of more favorable credit conditions. On the other hand, intensifying geopolitical and trade tensions increase the peril present in an already tumultuous environment.
Deepening geopolitical rifts pose the biggest risk to an improving credit landscape. The Russia-Ukraine war is approaching the end of its third year and the conflict in the Middle East, along with domestic polarization in certain markets, could disrupt trade and investment flows, roil financial markets, and force governments to increase defense spending amid already-stretched budgets.
At the same time, the easing of monetary policy will come at an uncertain and unsynchronized pace in different regions, with the descent almost sure to be slower than the rise. If central banks are forced to curtail their interest-rate cuts, the costs of debt service and refinancing could remain burdensome for all debt issuers and existential for those at the very low end of the ratings scale.
The potential that higher tariffs will reignite inflation and slow—or reverse—the descent in policy interest rates are key concerns for credit conditions in the region.
Amid the strained relationship between the U.S. and China, and the escalation in the Russia-Ukraine war, intensifying geopolitical tensions could weigh on market sentiment, investment, and capital flows.
Still, the U.S. economy remains resilient, and defaults look set to slow.
2025 marks another watershed moment for Europe and the EU. If the region does not rise collectively to the challenges from increasing geopolitical instability and fails to improve economic resilience, fragmentation could increase further.
Regional wars and their potential effects on energy prices remain the key risk for Europe, at least over the short term. Other elevated risks that we monitor include protectionist trade policies, faltering growth, and tightening financing conditions.
Trade complications. Asia-Pacific's credit landscape is set for more volatility and slower growth in 2025, amid uncertain trade and foreign policies by the incoming U.S. administration. That said, more tariffs against Chinese exports are likely. Our base case factors in a rise in the effective U.S. tariff rate on Chinese imports to 25% from 14% from the second quarter of 2025, and retaliation by China in kind. China's GDP growth could slow to 4.1% in 2025 and to 3.8% in 2026, amid limited stimulus to bolster consumption.
Growth at a crossroads. Countries with a large trade surplus with the U.S. (Vietnam, Thailand, Malaysia, and India) could be vulnerable to universal tariffs. To cope, Chinese producers may cut prices to stay competitive, while increasing exports to outside the U.S. The global trade slowdown could curb growth and squeeze Asia-Pacific currencies and exporters' revenues. We expect the region's growth to slip to 4.2% in 2025 and 4.1% in 2026, even as domestic consumption in emerging Asia remains supportive.
Financing hurdles. Geopolitical tensions complicate the credit landscape. More volatility could reverberate across capital markets, energy prices, and supply chains. Should tariffs prompt a resurgence in U.S. inflation, the Fed's monetary easing may slow. In response, Asia-Pacific central banks could keep rates high to limit outflows. A strong U.S. dollar, narrower offshore funding access, and costlier interest may strain credit further.
U.S. protectionism will test credit conditions in emerging markets (EMs). Our baseline assumptions include moderate new tariffs primarily on Chinese imports. Despite potential impacts on China's economy, we anticipate that EMs' credit conditions will remain resilient, bolstered by declining interest rates, and sustained--albeit slower--economic growth.
The balance of risks has clearly worsened for EMs. Higher than expected tariffs on China and/or a generalized levy on U.S. imports could have ripple effects on global demand, inflation, interest rates, and currencies. These factors will likely slow EMs' economic growth, resuming inflationary pressures and worsening financing conditions, which will likely lead to a growing number of downgrades and defaults.
In our baseline, EM rated issuers should benefit from ongoing monetary easing, supportive financing conditions and economic activity, despite the expected slowdown. This should reflect in stable rating activity.
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.
