Global corporate ratings activity turned positive in 2004, according to a study released by Fitch Ratings.

The rating agency today released its annual global corporate transition and default study. The study examines Fitch’s global corporate ratings migration and default rates in 2004 and over the period 1990-2004.

The study finds that rating activity turned positive in 2004, with downgrades contracting more than 50% compared to year-earlier levels, while upgrades accelerated nearly 70%, outpacing totals for 2003. The resulting ratio 0.5 downgrades to 1.0 upgrades was a complete reversal of the 2.0:1.0 ratio captured in 2003.

Negative rating volatility also slowed considerably in 2004, Fitch notes, with only 6.6% of rated issuers downgraded, compared with 16% and 23% in 2003 and 2002, respectively. Conversely, the proportion of upgrades rose to 13% in 2004 from 8% in 2003 and 6% in 2002.

In addition, the number of multiple notch downgrades recorded in 2004 declined by half, relative to 2003, while multiple notch upgrades became more visible.

“A host of contributing factors, including a stronger economic environment, robust corporate profits, a focus on balance sheet management, and the persistence of low interest rates laid the groundwork for improved credit conditions in 2004,” it says, reporting that upgrades for the year outpaced downgrades for the first time since 1997.

The number of defaulted issuers carrying a Fitch rating fell eightfold from 2003 levels, resulting in a Fitch annual default rate of 0.11% in 2004.

The new study also finds that the frequency of defaults is higher for issuers whose credit worth has recently suffered negative rating actions in the year prior to default (this is true across the investment grade and non investment grade rating categories). Issuers recently downgraded displayed a higher probability of default than issuers recently upgraded or issuers whose ratings remained stable. Also, issuers recently upgraded had the lowest probability of default in the year following the positive rating action