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.
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.
Towards a new global order: Tariffs imposed or mooted by the U.S. and countermeasures by other countries are moving apace in 2025. This has weakened investor sentiment, consumer confidence, and should weigh on economic growth this year. At the same time, global alliances and multinational institutions are being upended. The fundamental geopolitical changes at play will likely lead to material shifts in capital flows between regions, sectors, and asset classes.
Credit has remained resilient thus far: Some rating actions--including outlook revisions or CreditWatch placements--have occurred because of tariff-related uncertainties, but for the most part these have been limited. Through mid-March, global rating actions are largely balanced between upgrades and downgrades, and defaults have moderated so far this year, speaking to the larger tailwinds entering 2025 of resilient economic growth and favorable financing conditions.
Downside risks are building once again: Markets have reacted negatively to the unfolding global trade situation, but the responses have thus far been modest, keeping many equity indices, global benchmark interest rates, and corporate credit spreads on trajectories or within ranges they’ve occupied since the monetary tightening cycle started three years ago. This could reflect a blind spot by markets anchored in the belief that the tariff situation will improve. But should it worsen, further asset price declines may accelerate, tightening access to funding for issuers.
Overall: Amplified policy uncertainty, and accompanying near-term market volatility, pose a risk to an environment of favorable credit conditions for North American borrowers.
Ratings: Ratings momentum has been positive, with upgrades outpacing downgrades in the first quarter, and the region’s net outlook bias narrowing further. We expect the U.S. trailing-12-month speculative-grade corporate default rate to fall to 3.5% by December.
Risks: Higher tariffs threaten to reignite inflation and weigh on credit quality for entities exposed to imports and international markets. Borrowing costs could remain high amid increased investor risk aversion, and businesses and consumers could pull back further, leading to sharper-than-expected economic downturns in the region
Overall: Emerging U.S. unilateralism on security, trade, and finance has left European policymakers scrambling to coordinate a response. Remarkably, a response is in the offing, after the German government broke with the past to approve a €500 billion (11% of GDP) infrastructure fund and introduced plans to ease its fiscally constraining debt brake rule to accelerate military spending. Despite that, and the EU's commitment to finance European defense via the issuance of common European debt, Europe's aspiration to build a robust security deterrence capability will take years, not months-- highlighting the importance of keeping the U.S. onside.
Risks: Persistent uncertainty, notably around the U.S. administration's trade, foreign policy, and financial market strategies, may be a greater economic risk to confidence than the tariffs themselves. Meanwhile, Vladimir Putin's agreement to a "partial" 30-day ceasefire is, in our view, a pause but far from an end to the three-year conflict with Ukraine.
Ratings: Credit quality for financial institutions, insurance, and much of the rated corporate universe has strengthened in recent quarters, providing some buffers to protect against the economic costs involved in navigating the uncertain trading environment. For fiscally constrained European NATO members (apart from Germany), the annual security spending increase in national budgets is unlikely to exceed 0.2 to 0.3 percentage points (ppts) of GDP, market conditions allowing.
Benign for now: Supportive financing conditions and domestic consumption are steadying Asia-Pacific credit conditions. China's property sector may be seeing the green shoots of a recovery as home prices stabilize. Export activity remains brisk, but this is likely due to frontloading ahead of more trade tariffs. Direct and indirect effects from trade tensions and policies threaten to unwind the course.
Global trade showdown: President Trump's trade protectionist policies are escalating credit strains, disrupting supply chains and raising production costs. Retaliations could fan risks of a global trade war. In Asia-Pacific, the smaller, more open trade-centric economies are most vulnerable.
Double squeeze from China and the U.S.: Higher tariffs and still-soft domestic demand could further drag on China's economy, risking a deflationary spiral. Asia-Pacific economies will also be dealing with the possibility of a U.S. recession and broader knocks to global confidence.
Volatility and higher costs: Geopolitical tensions, including the strategic competition between China and the U.S., could create supply chain uncertainty and disruptions. A sharp downturn could fuel volatility and crimp financing access. Reciprocal tariffs could spur outflows from Asia-Pacific, leading to weaker currencies and higher borrowing costs.
Emerging markets' (EMs') resilient credit conditions are likely to be tested due to increasing trade protectionism in the U.S. The ensuing uncertainty has already impacted market sentiment. We anticipate that investment in key EMs will be subdued until there is greater clarity regarding the effects of protectionism on economic growth, inflation, and interest rates. Some damage has already occurred, and we expect slower economic activity to weigh on credit fundamentals and market sentiment.
Growing trade protectionism is a major risk for EMs. The announced and anticipated U.S. tariffs may provoke retaliatory measures from targeted countries, potentially leading to a trade war. In the short term, global trade disruptions could dent capital and investment flows, cause a significant economic slowdown, and reignite inflationary pressures. Long-standing U.S. tariffs and corresponding retaliatory actions from other nations may disrupt supply chains and accelerate relocation efforts. The trajectory of interest rates in this scenario is uncertain; while renewed inflationary pressures and a strong dollar could keep rates elevated, a sudden demand shock might necessitate monetary stimulus.
In our baseline, EM credit conditions will likely weaken over the coming quarters. Tariffs are expected to impair economic growth, investment, and market sentiment, decreasing demand for various goods and services. Financing conditions for EMs may deteriorate; although the interest-rate trajectory is uncertain, volatile market conditions are likely to increase borrowing costs and restrict market access for sectors affected by tariffs and for lower-rated issuers.
Our global credit cycle indicator (CCI) continues to signal a credit recovery this year. However, geopolitical and trade tensions, and growth concerns, amid increasing policy uncertainties, could stall or derail the upturn.
The corporate sector, thanks to supportive market conditions, has shown stronger upward credit momentum. Households continue to grapple with squeezed purchasing power and subdued sentiment.
The divergence across regions and geographies remains, suggesting different credit trajectories.
