financial risk / William_Potter

Stubbornly high core inflation and rising interest rates are the chief threats to global credit conditions, Fitch Ratings says.

In a new report, the rating agency said the underlying fundamentals for global credit have improved since the start of the year despite tighter financial conditions.

Against this backdrop, Fitch continues to forecast a modest recession in the U.S., with limited growth in Europe, and rising risks to China’s economic recovery.

The latest data on China’s property market showed a drop in sales and ongoing pressures on developers, which could threaten its growth recovery, it noted.

Meanwhile, the primary risks to global credit over the next couple of years remain inflation and interest rates, Fitch said.

While headline inflation has been declining rapidly, core inflation readings (excluding food and energy prices) have proven sticky at levels that are “well above” central banks’ targets, it noted.

Longer-term threats include the effects of climate change, demographic challenges, cyber conflict and disruptive AI adoption, Fitch said.