The eurozone crisis, along with the U.S. fiscal and debt challenges, will drive the global credit outlook this year, says Fitch Ratings.
The rating agency says that the unresolved U.S. fiscal and debt ceiling negotiations will be key to global risk appetite in the year ahead. “The fiscal cliff has been avoided but difficult decisions have been deferred,” it notes.”
The decisions on spending will now be taken concurrently with negotiations on the raising of the statutory debt ceiling which was reached on December 31, with extraordinary measures expected to last until the end of February.”
Fitch cautions that failing to “reach an agreement on raising the debt ceiling in a timely manner would undermine confidence in the United States as a reliable borrower and prompt a review of its ‘AAA’ rating.”
Europe’s fiscal issues will also continue to weigh on the outlook. Fitch says it maintains a negative outlook on seven of the 17 eurozone member countries. “Notwithstanding some progress on banking union at December’s EU summit, significant challenges still confront policy-makers, both in terms of moving towards greater fiscal and financial risk-sharing and in breaking the negative feedback loop between sovereigns and their banking systems. Policy complacency remains a risk for 2013,” it warns.
Fitch also says that it expects the weak operating environment for banks to continue. “Bank credit weakness is most pronounced in the eurozone with a weak operating environment and continued sovereign challenges. The U.S. situation is more stable, but profit pressures raise concern on execution of growth and expansion strategies,” it adds.