The general improvement in global credit quality seen in the first three quarters of 2006 slowed during the fourth quarter, as credit rating downgrades were roughly equal in number to upgrades, says Moody’s Investors Service in a new report.

The rating agency also says that the current distribution of ratings on review and rating outlooks suggest that rating downgrades are likely to exceed upgrades in 2007. At year-end 2006, Moody’s says 3.8% of all issuers were on review for downgrade, compared to 1.8% on review for upgrade. Moreover, 9.1% of all issuers had negative outlooks, compared to 7.7% of issuers with positive outlooks, suggesting a slight negative movement in ratings in the coming year.

Moody’s reports that global credit quality improved overall in 2006, with the ratio of rating upgrades to downgrades for the year at 1.4.

Looking ahead to 2007, the credit outlook for investment-grade issuers appears slightly more positive than it does for speculative-grade issuers, Moody’s says.

“While both sectors currently have almost twice as many credits on review for downgrade as for upgrade, investment-grade issuers have considerably more issuers with positive outlooks than with negative outlooks,” says Moody’s associate analyst Jennifer Tennant. “On the other side, the speculative-grade sector has more issuers with negative outlooks than with positive outlooks.”

Moody’s says that credit quality in the US, Canada, and Europe generally followed global trends in 2007. Latin America and the Asia-Pacific, however, have continued to show superior credit performance, with higher upgrade-to-downgrade rates and higher positive-to-negative Watchlist and credit outlook ratios.

By industry, the healthcare sector saw the largest number of rating actions during the fourth quarter, followed by the capital goods sector. The hotel, gaming and leisure industry saw more upgrades than downgrades, continuing its positive credit trend. At year end, Moody’s reports that the industries that have particularly high ratios of negative outlooks to positive outlooks, indicating likely declines in credit quality, are automotive, consumer products, forest products, and packaging.