Global credit risks rises as recession, gas crisis loom
Global credit risks have risen over the past quarter as the triple threat of rate rises, Europe’s gas crisis and China’s moribund property market show no sign of abating, Fitch Ratings says in its latest Risk Headquarters report.
While our base-case forecasts were revised in September to include recessions in the U.S. and Europe in 2023, the broad-based risk environment remains to the downside.
We have updated the report to factor in the downside revisions to our macroeconomic forecasts made in September and an evolving set of potential risks that would result in a deeper and more prolonged recessionary outlook.
The sustained rate-rising environment, the escalation of Europe’s energy challenges to a full-blown gas crisis and the lack of recovery in China’s property market are all contributing to a challenging macroeconomic environment that is heightening the potential for negative credit outcomes.
Core risks that would materially heighten credit risks include the failure of the European gas market to balance, sustained high inflation in the U.S. and Europe through 2023, the Chinese property market and the extent to which a lack of recovery may spread risks to other sectors, the progression of the Russia-Ukraine war, the pace of housing market corrections in developed markets, and policy missteps as authorities react to economic and social pressures.
Our list of key risks has also been updated to reflect the evolving environment. These include ‘stagflation’, ‘debt overhang and financial instability’, ‘China macro and financial risks’, ‘governance and policy risks’, and ‘climate transition. ‘Governance and policy risks’ was added to highlight the growing potential for economic policy mis-steps amid high inflation and a recessionary outlook.
The tensions between monetary and fiscal policy are particularly notable in several countries, as recently seen in the UK. In addition, heightened geopolitical risk and shifting long-term policy agendas are leading to greater policy uncertainty.
