Global credit conditions appear tranquil heading into the year ahead, but an array of risks lurk beneath the placid outlook, says Fitch Ratings.
In a new report, the rating agency said that the headline outlook for global credits is relatively benign, despite lacklustre economic conditions.
“The AI investment boom, which counterbalanced negative economic pressures, especially in the U.S., and underpinned highly favourable funding and liquidity conditions shows little sign of slowing, even as concerns about the risk of malinvestment and over-extended valuations have grown,” it said.
Additionally, easing monetary policy in the U.S. and Europe, along with fiscal support in major economies, including the U.S. and China, “will also cushion the economy,” it said.
Against that backdrop, Fitch said that its rating outlooks remain “roughly balanced” and most of its sector outlooks are “neutral” too — “reflecting our expectations for no significant changes to most sectors’ core credit drivers or asset performance.”
Yet, there are plenty of risks lurking, it warned.
“Negative themes include continued trade and investment pressures from U.S. tariffs, U.S. consumer challenges, and an accelerating downturn in private domestic demand in China,” it said.
Major uncertainties from the current year may resurface too, including the risk of “fundamental disruptions to U.S. policy, the AI revolution, persistent geopolitical risks, structural fiscal pressures and the shift in lending to private credit,” it noted.
“There are also emerging risks from China’s private investment contraction, overheating in the U.S. from a confluence of fiscal and monetary stimulus and inflationary pressures, and a sharper fall in oil prices beyond our base case,” it cautioned.
To the extent that these risks materialize, and result in “a significant widening of bond spreads, tightening of credit conditions or re-appraisal of our economic outlook” — Fitch said that this could lead it to reconsider its credit outlook.