The intensifying global trade war will likely weaken global credit conditions, threatening what has been a fairly favorable environment for most borrowers. While market volatility is likely to continue, ratings performance has so far exhibited resilience.
S&P Global Ratings sees 2025 as a year of promise and peril. The descent in policy interest rates and soft landings in many major economies may deliver on the promise of more favorable credit conditions. But intensifying geopolitical and trade tensions increase the peril present in an already tumultuous environment.
We are closely watching the credit implications of emerging and established risks—trade, tariffs, and policy; digital infrastructure and innovation; changing capital flows; energy and climate resilience; and debt markets in transition—over what promises to be another tumultuous year for global markets.
Trade, Tariffs, & PolicyS&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses—specifically with regard to tariffs—and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly.
The "Liberation Day" round of U.S. tariffs exceeds our expectations in both size and scope, lifting effective tariffs to levels not seen in nearly a century.
As such, the new tariffs raise downside risks to our current macro baseline, with the ultimate near-term damage depending on how the tariff revenue is spent in the U.S. as well as the scope and type of foreign country retaliation.
We lay out our initial directional thoughts on the impact of the new U.S. tariffs before we issue a fully revised global macro forecast next week.
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Digital Infrastructure & InnovationAs global and regional markets race to finance and adopt the technologies of the future, the technological revolution is taking shape today. Demand for digital infrastructure (such as data centers and fiber projects) is likely to reshape entire sectors, while innovation (including decentralized finance and AI adoption) will foster broader operational and business model disruptions. This era of growth and discovery also heightens risks. Amid increasing technological dependency and global interconnectedness, cyberattacks pose a potential systemic threat and significant single-entity event risk.
The surge in U.S. data center numbers and capacity should support credit quality for sectors exposed to the trend, including power generators, data center owners and developers, electricity utilities, and midstream gas companies.
S&P Global Ratings expects U.S. data centers will require 150 to 250 terawatt hours (TWh) of incremental power per year to 2030, with grid infrastructure likely the biggest hurdle to meeting that demand.
We expect that demand will result in sustained higher prices for power generators, increasing electricity demand after two decades of stagnation, and a reinforcement of the role of gas, with additional demand of between 3 billion cubic feet per day (bcf/d) and 6 bcf/d by 2030.
Risks relating to this rapid data center growth include financial pressures from increased capital expenditure, a potential for a backlash against power price increases, and environmental impacts including rising carbon emissions due to renewables' limited near-term ability to meet data centers' power needs.
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Debt Markets In Transition Market participants' need for transparency on the full scope of credit risk will expand as the financial system evolves, with increasing interplay and interconnection between public and private markets.
U.S. banks' loans to nonbank financial institutions (NBFI), including private credit players, have grown rapidly to now exceed $1 trillion.
This growth has fueled the expansion and revenue of several banks alongside further facilitating an increasingly large, competitive, and diverse NBFI industry. Banks' $770 billion of unfunded commitments points to further expansion in this space.
In an indication of the interplay and interconnection between public and private markets, banks are largely lending to NBFIs such as private equity, credit funds, and nonbank lenders through subscription line facilities and collateralized warehouse financing.
We believe rated banks have generally well-managed the risk on NBFI loans through conservative structuring, collateral requirements, and diversification. But the fast growth and close connections between traditional lenders and nonbanks could add to systemic risk and future asset quality challenges.
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Changing Capital FlowsFundamental geopolitical changes at play will likely lead to material shifts in capital flows between regions, sectors, and asset classes. Downside risks remain high amid increasing market volatility, and investors are rebalancing their portfolios to adjust for shifting risks—anticipating additional uncertainty. Borrowers (especially those at the lower end of the ratings spectrum facing still-elevated borrowing costs and tighter access to credit) will need to adapt to changing capital flows from long-duration speculative assets to safer havens, with implications for overall market liquidity, currency reserves, and investment in emerging markets.
We expect our ratings on nonbank financial institutions to remain relatively stable in 2025, though highly uncertain credit conditions will test profitability.
Higher tariffs might worsen already high, sticky inflation and slow--or reverse--the descent in policy interest rates, potentially causing uncertainty around fincos' growth opportunities, straining asset quality, and raising funding costs.
The consistency of funding through the cycle is essential to the industry's ratings stability, given most funding is from wholesale sources.
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Energy and Climate ResilienceMore severe and frequent extreme weather events and worsening physical climate risks continue to influence credit fundamentals, and threaten to disrupt supply chains without adaptation. Low- and lower-middle-income countries are the most vulnerable and least ready to adapt. At the same time, the energy trilemma of affordability, security, and sustainability is increasingly coming into focus as the transition evolves.
Green bonds will continue to dominate issuance, with transition and sustainability-linked bonds potentially helping to push total sustainable bond issuance to $1 trillion this year.
More than $900 billion of rated outstanding sustainable bonds mature in the next two years and nearly $2.5 trillion before the end of the decade, testing market participants' commitment to climate action and the strength of the sustainable bond market.
Efforts to close the climate finance gap in lower-income countries, a rebound of sustainability-linked issuance, a broader base of transition bond issuers, or expanding issuance in China could be swing factors for 2025 volumes.
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