The reintroduction of widespread lockdowns amid a second wave of Covid-19 infections would have large negative effects on global credit ratings, reports Fitch Ratings.
The rating agency said that if its downside scenario for the global economy is realized — a scenario that includes a resumption of lockdowns in major economies resulting in double-dip recessions that push back the global recovery beyond 2021 — most sectors would experience heavy effects on their credit ratings.
In this scenario, the financial sector would be broadly vulnerable to downgrades and other negative rating actions.
“Certain non-bank financial institutions and insurance sectors would be less exposed,” Fitch said, “with securities firms, investment asset managers, and non-life insurers/reinsurers experiencing a medium rating impact that may include outlook changes and some possible rating changes.”
Across the other global corporate sectors, commodities, airlines and businesses that are most exposed to discretionary spending (such as the retail, gaming, lodging and leisure sectors) would be the most vulnerable to a ratings impact in a downside scenario, Fitch said.
“By contrast, traditionally defensive sectors, including utilities, telecommunications, healthcare, food, beverage and tobacco, would only likely see a mild to modest impact,” the rating agency noted.
Most sovereign regions would also likely experience a significant ratings impact, Fitch said.
“We expect Latin America to be the most vulnerable owing to the region’s high commodity exposure and limited ratings headroom as well as some countries’ weak fiscal position and high public debt,” Fitch said, adding that North America “would be vulnerable to some outlook changes but would be relatively less vulnerable than other regions.”
Fitch noted that the biggest difference between its baseline scenario and the downside scenario would be the trajectory of the recovery.
Instead of a severe short-term impact followed by above-average growth in 2021, the downside scenario “includes a much more prolonged recovery phase with a delayed return to pre-crisis levels of economic output.”