Credit Conditions | S&P Global Ratings (2024)

Credit Research & Insights

Our regional and global Credit Conditions Committees—and the research publications we produce—provide financial market participants around the world with an essential resource for identifying and understanding prevailing and potential credit risks.

Assessing Global Macro-Credit Risks

As an assessment of the external operating environment, our regional and global Credit Conditions Committee forums—covering Asia-Pacific, Emerging Markets, Europe, and North America, which cascade into our global coverage—form an integral part of S&P Global Ratings’ credit rating analysis.

At the CCCs, our senior researchers, economists, and analysts (covering corporates, financial institutions, insurance, structured finance, sovereigns, and U.S. public finance) meet each quarter to evaluate the trends affecting the current and future states of economies, industries, and credit markets. The CCCs identify base case and downside scenarios, and rank exogenous risks. These views are cascaded to our analytical teams to inform their rating deliberations.

Our quarterly and special CCC reports crystallize the Committees’ conclusions, backed by a host of proprietary data, and with an eye toward helping investors make decisions—providing financial market participants around the world with a primary resource for identifying and understanding prevailing and potential credit risks.

Global Credit Outlook 2024: New Risks, New Playbook

Borrowers across all asset classes will need to adjust to tighter financing conditions and softer economic growth. While long-term yields will likely peak around midyear, financing conditions will likely stay tight in real terms in 2024. Borrowers have reduced near-term maturities, but the share of speculative-grade debt coming due rises significantly in 2025, making 2024 a pivotal year. Defaults will likely rise further, to 5% in the U.S. and 3.75% in Europe, above their long-term historical trends.

We expect additional credit deterioration in 2024, largely at the lower end of the ratings scale, where close to 40% of credits are at risk of downgrades. Sectors exposed to a decline in consumer spending are most vulnerable. Meanwhile, investment-grade credits should generally continue to show resilience despite some margin compression—with the exception of the real estate sector.

The main risks that could derail our baseline expectations, leading to further credit deterioration, include persistent tight financing conditions amid entrenched inflation; a sharper-than-expected slowdown in global growth; elevated input-cost inflation and high energy prices that squeeze corporate profits and pressure governments’ fiscal balances; vulnerable commercial real estate; and amplifying geopolitical tensions.

Looking ahead, heightened geopolitical risks, the need to accelerate the decarbonization of the economy to address the rise in climate-related risks, and the technology revolution will increasingly shape the future of credit.

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Credit Conditions North America Q1 2024: A Cluster Of Stresses

Credit stresses are growing, and borrowers will need to adjust to a new playing field in which financing conditions could become even tighter. The costs of debt service and/or refinancing could be overly burdensome, especially for lower-rated borrowers.

Other high risks include the chance of recession in the U.S. and persistent cost pressures.

The net outlook bias for North American corporates was negative 10.9% as of Nov. 15. We expect the U.S. trailing-12-month speculative-grade corporate default rate to reach 5% by September.

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Credit Conditions Europe Q1 2024: Adapting To New Realities

2024 looks set to be a year of adaptation to the hangovers from high inflation, high rates, and high debt, against a more uncertain and volatile geopolitical backdrop.

Geopolitical conflicts spilling over to Europe, a sharp rise in unemployment dragging Europe into recession, and a protracted period of higher rates exposing financial vulnerabilities are the key risks.

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Credit Conditions Asia-Pacific Q1 2024: China Slows, India Grows

Shift in regional growth pattern. We expect Asia-Pacific's growth engine to shift from China to South and Southeast Asia. We project China's GDP growth to slow to 4.6% in 2024 (2023: 5.4%), edge up to 4.8% in 2025, and return to 4.6% in 2026. We see India reaching 7.0% in 2026 (6.4%); Vietnam, 6.8% (4.9%); Philippines, 6.4% (5.4%); and Indonesia remaining steady at 5%.

High rates and inflation. With Asia-Pacific's central banks likely to keep interest rates high, the region's borrowers will see costlier debt servicing. Concurrently, a widening conflict in the Middle East could drag global supply chains and raise energy costs, fanning inflation. High input costs dilute corporate margins, while high prices weaken demand.

Energy and demand shock risk. Asia-Pacific's growth is susceptible to energy shocks (widening Middle East conflict) and slower global demand (risk of U.S. hard landing). We lowered our projection for the region's growth (ex-China) in 2024 from 4.4% to 4.2%. The prospects for industries also differ, with export-centric manufacturing faring worse.

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Credit Conditions Emerging Markets Q1 2024: Not Getting Easier

Credit conditions in emerging markets (EMs) will likely deteriorate in 2024, as major economies slow down (the U.S., China, and the eurozone), the effects of rapid monetary tightening surface, and debt maturities pile up.

The balance of risks for EM credit conditions remains on the downside, given an extended period of high interest rates, the potential for further inflationary pressures, and weakerthan-expected growth in the largest economies. Debt refinancing will likely complicate the picture, as the global maturity wall is building up with considerable peaks in 2025.

Credit quality across key EMs will likely be strained as risks unfold.

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Credit Cycle Indicator Q1 2024: More Pain Before A Recovery In 2025

Our forward-looking global and regional Credit Cycle Indicators (CCIs), which tend to lead credit stress and recovery by six to 10 quarters, are pointing to a credit recovery in 2025.

Meanwhile, with interest rates higher for longer and financing conditions remaining tight, debt will stay costlier and hit borrowers' liquidity profiles.

Furthermore, risk of a hard economic landing and higher mortgage payments could limit household discretionary spend, exacerbating credit pressures.

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