Global corporate credit quality is likely to weaken in 2005 says a new report from Standard & Poor’s.

The rating agency notes that the global corporate default rate for speculative-grade and investment-grade rated entities fell visibly at the end of 2004 to an annualized rate of 0.69% from 1.84% in 2003. The global speculative-grade default rate has remained below the long-term (1981-2004) average of 4.91% for 13 consecutive months, but is still above the record low of 1.3% posted in the second quarter of 1997.

The total number of defaults (49) was the lowest recorded since 1997, but the global default rate is expected to edge up slowly from its trough in 2005, it notes.

In the U.S., results from its default forecast model indicate that U.S. speculative-grade default rates will decline slightly from their fourth-quarter low (2.3%) but then turn around in the latter part of 2005.

S&P adds that concerns remain for a more material increase in defaults in 2006 and beyond.

“Expectations for economic strength, financing conditions, and corporate profitability in 2005 are still favorable albeit lower than the growth rates posted in 2004,” observed Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group.