Credit quality for global sovereigns will likely continue to stabilize in the year ahead, says Moody’s Investors Service in a new report.

In its new outlook for 2014, the rating agency says that nearly 75% Moody’s-rated sovereigns carry stable rating outlooks, compared with fewer than 66% at the start of 2013. However, it notes that this stabilization in rating outlooks reflects divergent trends between advanced and emerging economies. “Among advanced economies, many rating outlooks have moved to stable from negative, as in the case of the U.S. and several euro area countries,” it says. “Among emerging economies, some outlooks moved to stable from positive, as in the case of China and Brazil.” Moody’s says it expects these divergent trends to continue in 2014.

Positive credit trends among advanced economies will be driven by improving growth prospects, stabilizing debt dynamics, more resilient banking systems and receding contagion risks, Moody’s says. “As growth recovers — especially with the euro area emerging from recession and momentum strengthening in the U.S. — improved revenue generation and lower social welfare expenditures will support fiscal consolidation efforts,” it says.

Additionally, it suggests that ongoing reforms in the euro area to address structural imbalances and institutional weaknesses will also reduce contagion risks and support investor confidence. However, it also says that budget deficits, elevated indebtedness, and contingent liabilities will continue to constrain some advanced economies’ credit quality.

For emerging economies, Moody’s expects to see a continued shift to less favourable credit quality conditions, which began in 2013. The rating agency says it believes that cyclical factors and emerging structural constraints in large emerging economies will continue to drive below-average-trend growth, weighing on commodities demand and government revenues. Moreover, it notes that a tightening of monetary policy in response to the expected tapering of the U.S. Federal Reserve’s quantitative easing programme is likely to depress growth.

Overall, Moody’s believes that sovereign creditworthiness will be more vulnerable to common global risks than to region-specific exposures in 2014. These risks include a disorderly unwinding of monetary stimulus in the U.S., persistently elevated event risks in the euro area, and uncertainty about commodity prices.