The outlook for global credit ratings is weaker for the year ahead than it was last year across most ratings sectors, according to a new Fitch Ratings Inc. report.
“The greatest challenges are undoubtedly faced by emerging-market issuers in all sectors, but this is a global trend — the outlook bias is also negative for developed-market entities across the majority of sectors,” says Monica Insoll, managing director at Fitch, in a statement.
Sovereign ratings have the greatest share of negative outlooks, at 21%, the credit-rating agency predicts.
“This points to the likelihood of a third consecutive year in which downgrades outnumber upgrades in this sector, possibly by a wide margin,” the Fitch report says. “Pressures include a strengthening U.S. dollar, global trade weakness and policy uncertainty. Many commodities export-dependent countries in the Middle East and Africa also still struggle to adjust to the dramatic decline in prices, despite the recent recovery.”
The negative outlook bias is 10% for corporates and 11% for banks, Fitch reports: “The industries facing the greatest challenges include natural resources and traditional retail. The expected boost to U.S. economic growth would be positive for corporates but the increased likelihood of rising interest rates is not.”
However, financials stand to benefit from rising rates, which would allow them to increase their net interest margins, Fitch says: “Banks in Europe face still slow economic growth and high [impaired loans] in some countries (notably Italy and Portugal). Low rates remain a challenge for earnings, but do limit impairment charges.”