Although the global credit crisis has already wreaked its havoc on the global economy, markets are not out of the woods yet as uncertainty will continue to prevail in the short term, said Thomas Connell, head of Canadian operations with Standard & Poor’s Corp., at the Investment Industry Association of Canada’s annual conference in Banff today.

“There are lots of lessons still to learn from the crisis,” Connell says. “But the general sense is that we’re not out of it by any means. There is more widespread pressure” in the months ahead.

At the heart of this continued volatility is an expected rise in the 12-month projected default rate to the long-term average of about 4.6% from the recent standard of about 1% in the previous few years.

“The global turbulence is something we’ll all have to deal with as it plays out,” he says. “Risk is back and risk perception is back. The market has to adapt to this.”

Securitization and an expanding market appetite for risk were at the heart of the credit turmoil. Risk spreads declined massively between 2003 and mid-2007 as there was hyper liquidity to fund assets. “It’s as if risk went away from 2002 through mid-2007,” he says.

But despite the expected pressure still ahead, all is not doom and gloom as these are “not conditions for a wholesale credit downturn,” Connell adds. Rather, the expected crunch is based more on “feeling the pinch” from the subprime mortgage crisis in the United States.

In addition, the lessons from the credit crisis will strengthen the foundation of global capital markets in the years ahead, he says. For one, there is now a heightened emphasis on transparency and credit-rating agencies are starting to look within to change their processes.

“Rating methodologies will evolve,” Connell says, noting that Standard & Poor’s is now exploring the merits of including a subscript in structured credit products compared with conventional government credit. “We need to do more to enhance market confidence in the credit-rating process.”