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.
Aging populations, like other global megatrends such as increasing digitalization, are gradually reshaping our world, and often in unpredictable ways. Global aging, typically stemming from declining birth rates and longer life expectancies, is a measurable trend in most geographies. Yet it's difficult to predict the likely credit impacts, how material they may be, and when they might unfold. Some credit impacts have already emerged while others may take several years.
The characteristics of aging populations vary by jurisdiction. Factors that influence future demographics and their impact on creditworthiness are also connected with other megatrends, such as climate change, geopolitical risks, and the advancement of disruptive technologies like AI. S&P Global Ratings believes the potential credit impacts on economies, sectors, and asset classes are bound to accelerate. They will be felt across developed and emerging markets, but likely be uneven across geographies and sectors, creating both risks and opportunities.
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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.
High market volatility and uncertainty owing to trade tensions threaten the outlook for global economic growth.
The U.S. administration's announced tariffs, if implemented, will not affect all sovereigns equally. Open economies with large exports to the U.S. could be more exposed.
We expect most sovereigns to withstand the initial effects of tariffs in line with their current levels of creditworthiness. But secondary effects--lower economic activity and commodity prices, and elevated funding costs--could take a toll on credit quality over the next few months.
Global geopolitical risk remains at its highest in decades and has the largest potential for disruption for sovereigns globally.
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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 potential for political interference and economic disruption made rated sovereigns and their critical infrastructure the target of a majority of reported cyber breaches since 2000, according to data analyzed by S&P Global Ratings.
Recent geopolitical tensions provide new impetus for attacks on sovereigns, including within the scope of hybrid warfare and to cause political unrest.
Effectively managing sovereigns' cyber risk requires the investment of time and resources to develop public sector defenses that are robust, responsive, and adaptable to evolving threats.
Currently, we consider it unlikely that a cyber incident might significantly or directly affect the creditworthiness of a sovereign.
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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.
Banks and nonbanks are competing and converging in the financial system, as they offer credit intermediation while also providing funding to each other. Private credit exposures, in particular, have grown rapidly on the balance sheets of insurance companies, funds, and nonbank financial institutions (NBFI) lenders.
The plethora of direct and indirect funding and liquidity connections between banks and nonbanks could amplify and propagate systemic risk.
Current relatively benign funding conditions limit imminent financial stability risks, but geopolitical shocks could trigger renewed turbulence.
In our view, major global banks have improved their counterparty credit risk management, due in part to increased regulatory probing, and collateral and good diversification by borrower type can further help mitigate their credit risks.
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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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Aging populations, like other global megatrends such as increasing digitalization, are gradually reshaping our world, and often in unpredictable way. Global aging, typically stemming from declining birth rates and longer life expectancies, is a measurable trend in most geographies. Yet it's difficult to predict the likely credit impacts, how material they may be, and when they might unfold. Some credit impacts have already emerged while others may take several years.
S&P Global Ratings outlines key concepts that help it assess the credit materiality of aging populations and how that credit materiality might influence credit ratings, now and in the future. This paper relates to all foundational criteria articles used to assign credit ratings.
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