The intensification of the eurozone crisis in late 2011 triggered a rise in negative rating outlooks, says Fitch Ratings, and that it expects more volatility in the year ahead.
In a new report, the rating agency reports that the proportion of ratings with a negative outlook rose in the second half of 2011 to end the year at 9.3%, up from 6.8% in the second quarter of 2011, which “tentatively reversed what had been a trend of two previous years of global rating outlook stabilization.”
Banks experienced the greatest rise in negative outlooks, it says, climbing to 11.5% from 8.5%, as they were impacted by eurozone negative rating action in December. Other sectors which nudged up from cyclical lows during the last six months include insurance, corporates and US public finance.
Fitch also notes that the proportion of ratings at the highest level (AAA and AA) is falling in sectors most directly exposed to the eurozone debt woes. The share of global sovereigns with top ratings fell to 24% at the end of 2011 from 32% at the end of 2010. Only 8% of bank ratings are now at this level, down from 13% a year ago, and Fitch says it expects this trend to continue.
In the absence of a “comprehensive solution” to the eurozone crisis, with politicians just muddling through, Fitch expects the crisis to persist and be punctuated by further episodes of severe financial market volatility.
“Temporary or partial reprieve, such as the ECB liquidity lifeline in December, are expected to continue to play an important role in this “third way” scenario of muddling through. However, achieving growth, while simultaneously engaging in austerity programmes to wrestle government budgets under control is a serious challenge which will continue to impact the global credit outlook,” says Monica Insoll, managing director in Fitch’s Credit Market Research group.