Fitch Ratings foresees an increase in negative ratings actions in the year ahead.

Given the likelihood of a slowdown in economic growth, continuing elevated levels of market risk, and a move away from the very low levels of credit defaults seen since 2004, the rating agency predicts these factors will all likely contribute to a continuing trend of negative rating actions during 2008.

“The pace and scale of negative rating activity will be affected by the role of credit ratings as guides to relative default likelihood rather than market pricing or economic activity,” notes Richard Hunter, regional credit officer for Europe.

“The majority of ratings at the portfolio level are still anticipated to remain stable over 2008, but there will be a strong bias toward negative actions over positive actions. Concentration of negative actions within certain sub-segments of structured and corporate finance will likely contribute to the continued fragility of sentiment,” adds Hunter.

In structured finance, Fitch notes that, although the majority of assets performance outlooks remained either stable or improving as at end-December 2007, this year sees a record number of sub-sectors — more than 30 — where Fitch anticipates declining asset performance.

For financial institutions, despite the scale of market turmoil, the average ratings of regulated institutions remain at a strong level, it says. Current expectations are that only a limited likelihood exists of widespread or multi-notch downgrades. Fitch acknowledges that risk management appears to have made a meaningful difference in the relative performance of individual institutions, but also notes that several more quarters’ reporting are likely to be required before confidence in bank exposure levels can begin to be restored.

For corporate entities, Fitch anticipates that financial and business risk issues will re-emerge in rating activity in 2008, ahead of the event-risk related actions prevalent in 2007.

The report also notes that the broadly positive rating trend which has characterised emerging markets issuers in recent years is also expected to slow significantly in 2008.