S&P Global Ratings' Credit Cycle Indicators (CCIs) monitor buildups and corrections in leverage and asset prices over the medium term, as well as financing conditions. It does not directly capture or predict shifts in government policies or the geopolitical and trade landscape, which are risk factors heightened in the global economy today. Nevertheless, we use this tool to gauge developments and turning points in the credit cycle as part of our wholistic analysis of economic and credit conditions.

Global

Macro headwinds could further stall the upward credit momentum

The global CCI continues to climb up from its early-2023 trough as the corporate sub-indicator rises, but the divergence of the household sub-indicator (see chart 1) could weigh down the recovery. Earlier prospects of a soft landing across major economies and interest rate cuts by central banks have provided supportive macroeconomic conditions. However, geopolitical and trade tensions are stoking greater uncertainty and volatility. Furthermore, sharper-than-expected economic slowdown could pose headwinds to the macro-credit environment.

The ongoing rise in the corporate sub-indicator reflects supportive financing conditions for corporates, underpinning higher debt to GDP and buoyant equity. Meanwhile, the household sub-indicator remains subdued as stickier prices squeeze discretionary spending.

The credit story is playing out differently across regions. The North American CCI is still climbing. The eurozone CCI is rising as equity improves and house prices recover--notably in Germany, Italy, the Netherlands, Portugal, and Spain. The emerging markets and Asian CCIs are seeing signs of a reversal of their earlier credit recovery, amid a decline in household leverage in some of these markets.

For more details about our proprietary CCI, see "White Paper: Introducing Our Credit Cycle Indicator," June 27, 2022.

Chart 1

Asia

Growth challenges could exacerbate credit correction pains

China:  The China CCI is going through a downturn, indicated by the downward sloping household sub-indicator (see chart 2). The decreasing household indebtedness is driven by mortgage prepayments. Soft house prices in the country point to ongoing weaknesses in the property sector, prompting households to hold back from making home purchases. Furthermore, subdued employment is weighing down recovery in household consumption and confidence. The risk of deflationary pressures could crimp borrowers' ability to service debt.

On the other hand, the corporate sub-indicator continues to see upward momentum. Corporate debt rose 7% year over year in the third quarter of 2024 and the country's banks are extending loans to sectors identified by the government as future growth engines (e.g., high tech, advanced manufacturing, and renewable energy) to support the country's growth. Stimulus measures by authorities have lifted market sentiment and domestic stock market indices. For listed corporates, a sustained recovery in capital markets could support financing options.

Chart 2

Japan:  The Japan CCI has resumed a downward trend (see chart 3) as the corporate sub-indicator is dipping down following a brief upturn while the household sub-indicator continues to slide.

Japan's nominal GDP has ticked up following rising inflation. At the same time, nominal corporate debt in local currency terms slightly slipped 0.4% in the third quarter of 2024; nominal household debt has stayed almost flat. Rising uncertainty in the macroeconomic landscape (such as from increasing trade tensions) could lead to corporates undertaking less investments and expansion, keeping their demand for credit soft.

Chart 3

Rest of Asia:  The Asia (ex-China, ex-Japan) CCI is coming down due to an ongoing decline in the household sub-indicator (see chart 4) as households deleverage and/or house prices ride a correction. These are taking place in markets like Korea, Hong Kong, and Thailand.

In Korea, nominal household and corporate debt in local currency terms expanded up to 3% year over year as of third-quarter 2024, underlining still-high household and corporate leverage at about 90% and 110%, respectively. Korean households' heavy debt load is concerning; their indebtedness could deteriorate further should global trade tariffs hit economic growth through lower exports and incomes. Korean banks' asset quality could come under strain amid high household debt and weaker economic fundamentals; tighter lending standards could ensue.

On the other hand, Thailand's nominal corporate debt in local currency terms fell 2% as of third quarter 2024 compared to the start of the year, while nominal household debt stayed mostly flat. Thailand's household and corporate leverage combined is relatively high at 170% of GDP compared with neighboring economies, underlining a debt overhang that poses risks especially for households and small to medium-sized enterprises. A sharp deterioration in loan delinquencies could accelerate the tightening in lending standards and squeeze financing.

Chart 4

Emerging Markets

External risks could make credit recovery in 2025 short lived

The CCI ticked down, but remained in the positive territory, to 0.2 standard deviations above its long-term trend, after six quarters of unabated ascent (see chart 5). Tighter financing conditions and a softening in the households' sub-indicator (lower debt to GDP and weaker house prices) drove the slight drop. Peaks and troughs in the CCI tend to lead credit stresses and recoveries by six to 10 quarters. While it's too soon to tell whether the latest peak in CCI reading will firm up in the coming quarters, the downward momentum may suggest the credit recovery foreseen for 2025 could be short lived, or with limited headroom.

The narrative becomes more complex when accounting for U.S. protectionism and policy uncertainty. While changes in government policies and uncertainty around them are not directly incorporated by the CCI, they will likely contribute to higher-for-longer borrowing costs, equity market volatility, and potential capital outflows from EMs. In fact, EMs (ex-China) have recently been experiencing a split between debt inflows and equity outflows. Tariffs may also have adverse impacts on specific sectors and jurisdictions. Examples include Indian steelmakers, risking a glut of imported steel (see "Indian Steelmakers Face Harsher Downside Scenarios On U.S.-Tariff Effect," published March 5, 2025), and Mexican auto suppliers, metals and mining, and oil and gas companies (see "How U.S. Tariffs Could Hit Rated Mexican Entities Across Sectors," published Feb. 27, 2025).

Emerging Asian countries mirrored the aggregate EM CCI behavior, Brazil and Mexico's CCIs kept on rising, and emerging Europe was basically unchanged, with Turkiye continuing its downward trend that began in the fourth quarter of 2023.

Chart 5

Corporates:  The corporate sub-indicator hit its trough in first-quarter 2023 at -1.7 standard deviations below its long-term trend, and now reads -0.2, progressing in its rise. Equity prices rose particularly in emerging Asia, favored by the Chinese stimulus measures' announcement, the very low default rate and manageable debt, while they read lower in emerging Europe. However, corporate debt to GDP decreased for 64% of the countries. Most emerging market companies opted to refinance debt earlier in 2024 and borrowing costs remain above their five-year averages, especially for investment-grade rated entities.

Households:  The household sub-indicator marginally decreased to -0.4 standard deviations, lower than its corporate counterpart. The ascent of the sub-indicator plateaued in Q1 2024 (-0.3 standard deviations). Household debt to GDP was basically unchanged. Thailand and Colombia were the exceptions with a mild downward trends as Thailand deployed stricter lending criteria for auto and home loans. Property prices displayed diverging dynamics: rising in Latin America following policy rate cuts from most local central banks, while heading south in Turkiye, which is still grappling with the strict monetary policy enabled to tame inflation.

Eurozone

CCI points to improving household and corporate credit quality

The Eurozone CCI has continued its improvement journey from its trough in late 2023 (see chart 6). Driving the momentum are positive equity price developments and somewhat recovering house prices for most countries. Borrowing capacity for households and corporations is still increasing due to continuous falling debt to GDP, high levels of employment, and rising real wages. However, current heightened geopolitical and political uncertainty poses risk to the credit recovery signaled by the CCI.

Chart 6

Corporates:  Corporate sector debt to GDP continues to decline across most European countries over the last reported quarter barring Sweden (2.1% - quarterly increase), Germany (0.3%), and Austria (0.2%). This means borrowing capacity broadly improved with average debt levels remaining about 12% lower than four years ago (Q3'2020). Lower indebtedness is normally a good starting point for the next credit upswing, but when paired with low GDP growth figures (2024 euro area GDP at about 0.9%), this could also be consistent with continuing low appetite for investments (despite broadly improving financing conditions during this period). Indeed, Eurostat reported a 3% fall in industrial production for 2024.

Households:  European households have remained cautious even while equity markets and house prices continue to improve for most countries on the back of the easing of monetary policy. Strengthened household balance sheets translate to debt to GDP, which are on average 16% lower than four years ago (Q3'2020), albeit with some minor exceptions where debt has increased. This includes Hungary (0.6% - quarterly change), Czech Republic (0.3%), and Norway (0.3%). With mixed signals from recent EU surveys—economic sentiment improving and employment expectations deteriorating—and given heightened geopolitical and political uncertainty, it seems unlikely that households will materially change their financial risk appetite in at least the near term.

North America

Policy uncertainty challenges economic resilience and credit recovery

The North American CCI increased to -0.5 standard deviation as of third-quarter 2024, largely supported by favorable financing conditions and upbeat equity markets at that juncture (see chart 7). However, while the CCI's trend continues to signal a credit recovery likely unfolding in the region this year, significant policy uncertainty since President Trump's inauguration—around trade and tariffs, in particular—has cast a shadow over the economic trajectory for the U.S. and Canada. This has sparked market volatility and has raised concerns regarding inflation, interest rates, and liquidity. In this context, risk in certain segments—such as lower-income, highly indebted households, and lower-rated corporates with more exposure to policy-related disruptions—could be further amplified and lead to more credit stress.

Chart 7

Corporates:  The corporate sub-indicator rose steadily, with corporate debt to GDP and equity prices continuing to increase as of third-quarter 2024. On the back of strong earnings momentum, supportive market conditions, and more manageable near-term maturities, we expect the U.S. speculative-grade corporate default rate to decline to 3.5% by December (see "The U.S. Speculative-Grade Corporate Default Rate Could Fall To 3.5% By December 2025," published Feb. 20, 2025). However, downside risks have increased, as escalating tariffs and retaliatory measures threaten to hurt earnings for corporates exposed to cross-border supply chains and international markets, and tighter immigration controls weigh on labor supply for those depending on immigrant workers.

Households:  The household sub-indicator hasn't shown clear signs of bottoming-out in the past several quarters, and there is mounting evidence that points to cracks in household financial strength. In Canada, the lagged effects of the previous Bank of Canada rate hikes have pushed its household debt-service ratios to historically high levels as mortgages get renewed. In the U.S., while fixed-rate mortgages shielded some of the effects of restrictive interest rates, the ratio of auto loans and credit card loans transitioning into delinquencies has been trending up across income groups (especially among lower-income cohorts), and banks' charge-off rates of credit card and consumer loans are also at multi-year highs. That said, consumer credit stress could be even more pronounced if their purchasing power erodes further, unemployment jumps materially, and wealth effects wane.

Related Research

• Indian Steelmakers Face Harsher Downside Scenarios On U.S.-Tariff Effect, March 5, 2025
• How U.S. Tariffs Could Hit Rated Mexican Entities Across Sectors, Feb. 27, 2025
• The U.S. Speculative-Grade Corporate Default Rate Could Fall To 3.5% By December 2025, Feb. 20, 2025
• White Paper: Introducing Our Credit Cycle Indicator, June 27, 2022