In this edition of Instant Insights, our key takeaways from recent articles include the following: key themes and risks to watch in 2025, the effects of slowing immigration on the U.S. economy, our outlooks on subnational governments, and the top 10 sustainability trends. We dive into the decarbonization of European real estate, wildfires' impact on North American investor-owned utilities, updates of the tech sector and pay-TV operators in the U.S., banks in Italy, Portugal, Saudi Arabia, South Africa, Switzerland, and the U.K., as well as our outlooks on Asia-Pacific consumer, Latin America structured finance, China engineering and construction, Macao gaming, and U.S. public finance housing and not-for-profit utilities. We also feature bond markets in G7 countries, the global corporate default tally, Emerging Markets Monthly Highlights, Argentina's Vaca Muerta shale, Europe's RMBS and covered bond markets, China's upper-tier local governments, Hong Kong residential mortgage loans, as well as the BSL CLO index, and LA wildfires and variable-rate municipal debt in the U.S.

For S&P Global Ratings' assumptions and credit outlook for the year on 25 corporate and infrastructure industries, please check out the newly released "Industry Credit Outlook 2025" series.

S&P Global Ratings periodically updates this article, which contains an edited compilation of key takeaways from our most up-to-date thought leadership organized by sector, region/country, and publication date (see table 1).

Table 1

Key Takeaways From Our Most Recent Reports

Credit conditions

1. Global Credit Outlook 2025: Promise And Peril, Dec. 4, 2024

• As economic soft landings materialize in many major economies and policy interest rates begin their descent, global credit conditions look set to remain supportive in 2025—with the caveats that there will be region- and country-specific divergence.
• Deepening geopolitical rifts pose the biggest risk to an improving credit landscape; Donald Trump's return to the White House will have wide-ranging ramifications—with a high level of uncertainty attached to his second term, which could reignite risk-aversion among investors and affect capital flows.
• Companies have made good progress in pushing out maturities, which has eased near-term liquidity pressure on many lower-rated borrowers, buying them time if market volatility arises and/or investors become more risk-averse.
• We forecast a decline in defaults, albeit at a slower pace than the rise. The lowest-rated borrowers continue to face the strains of still-elevated borrowing costs, the lingering effects of permanently higher prices on consumer purchasing power, and increasing protectionism that will weigh on global trade.
• Any improvement in global credit conditions will be along a narrow path strewn with overlapping risks. Slowing economic activity, the prospect of resurgent inflation, and political polarization could lead to sustained bouts of market volatility.

2. CreditWeek: What Are The Biggest Risks To Global Credit In 2025?, Dec. 5, 2024

• As we look toward 2025, S&P Global Ratings sees a year of promise and peril.
• The descent in key interest rates and resilience in many major economies may deliver on the promise of more favorable credit conditions.
• However, intensifying geopolitical and trade tensions increase the peril present in an already tumultuous environment.

3. CreditWeek: What Intersecting Risks Trends Are Key To Watch In 2025?, Jan. 16, 2025

• 2025 is likely to be a year of promise and peril. Easing inflation and resilient labor markets and consumer spending may deliver more favorable credit conditions. But the speed and extent of monetary policy remain in question--and trade and geopolitical tensions increase the peril present in an already tumultuous environment.
• Ultimately, global credit conditions are likely to remain supportive this year. But any improvement will be along a narrow path strewn with overlapping risks.
• Against this backdrop, we will be closely watching key emerging and established risks, including the direction of monetary easing and renewed focus on sovereign debt amid credit headwinds; how capital flows evolve as private credit responds to lower yields; the implications of geopolitical uncertainty on market volatility, global trade, and commodities; major economies' race to electric vehicle dominance; and the rise of data centers and AI.

4. Credit Conditions Asia-Pacific Q1 2025: Bracing For Volatility, Dec. 3, 2024

• Trade complications. Asia-Pacific's credit landscape is set for more volatility and slower growth in 2025, amid uncertain trade and foreign policies by the incoming U.S. administration. That said, more tariffs against Chinese exports are likely. Our base case factors in a rise in the effective U.S. tariff rate on Chinese imports to 25% from 14% from the second quarter of 2025, and retaliation by China in kind. China's GDP growth could slow to 4.1% in 2025 and to 3.8% in 2026, amid limited stimulus to bolster consumption.
• Growth at a crossroads. Countries with a large trade surplus with the U.S. (Vietnam, Thailand, Malaysia, and India) could be vulnerable to universal tariffs. To cope, Chinese producers may cut prices to stay competitive, while increasing exports to outside the U.S. The global trade slowdown could curb growth and squeeze Asia-Pacific currencies and exporters' revenues. We expect the region's growth to slip to 4.2% in 2025 and 4.1% in 2026, even as domestic consumption in emerging Asia remains supportive.
• Financing hurdles. Geopolitical tensions complicate the credit landscape. More volatility could reverberate across capital markets, energy prices, and supply chains. Should tariffs prompt a resurgence in U.S. inflation, the Fed's monetary easing may slow. In response, Asia-Pacific central banks could keep rates high to limit outflows. A strong U.S. dollar, narrower offshore funding access, and costlier interest may strain credit further.
• A supplementary slide deck is available here.

5. Credit Conditions Emerging Markets Q1 2025: The Tariff Trials, Dec. 3, 2024

• U.S. protectionism will test credit conditions in emerging markets (EMs). Our baseline assumptions include moderate new tariffs primarily on Chinese imports. Despite potential impacts on China's economy, we anticipate that EMs' credit conditions will remain resilient, bolstered by declining interest rates, and sustained--albeit slower--economic growth.
• The balance of risks has clearly worsened for EMs. Higher than expected tariffs on China and/or a generalized levy on U.S. imports could have ripple effects on global demand, inflation, interest rates, and currencies. These factors will likely slow EMs' economic growth, resuming inflationary pressures and worsening financing conditions, which will likely lead to a growing number of downgrades and defaults.
• In our baseline, EM rated issuers should benefit from ongoing monetary easing, supportive financing conditions and economic activity, despite the expected slowdown. This should reflect in stable rating activity.

6. Credit Conditions Europe Q1 2025: Fusion Or Fission?, Dec. 3, 2024

• 2025 marks another watershed moment for Europe and the EU. If the region does not rise collectively to the challenges from increasing geopolitical instability and fails to improve economic resilience, fragmentation could increase further.
• Regional wars and their potential effects on energy prices remain the key risk for Europe, at least over the short term. Other elevated risks that we monitor include protectionist trade policies, faltering growth, and tightening financing conditions.

7. Credit Conditions North America Q1 2025: Policy Shifts, Rising Tensions, Dec. 3, 2024

• The potential that higher tariffs will reignite inflation and slow—or reverse—the descent in policy interest rates are key concerns for credit conditions in the region.
• Amid the strained relationship between the U.S. and China, and the escalation in the Russia-Ukraine war, intensifying geopolitical tensions could weigh on market sentiment, investment, and capital flows.
• Still, the U.S. economy remains resilient, and defaults look set to slow.
• A supplementary slide deck is available here.

Building materials

8. 2025 Outlook -- China Commodities Watch: Building Materials Sector To Remain Underwater, Jan. 14, 2025

• Traditional building material demand in China will remain under pressure this year due to ongoing weakness in the country's property market.
• Industrywide overcapacity will persist despite tighter regulations and efforts to rationalize production. Cement margins will nevertheless slightly improve, in our view, as coal prices decline and cement prices stabilize.
• The credit trend of our rated companies could diverge. Anhui Conch Cement Co. Ltd.'s conservative balance sheet allows it to withstand pressure, whereas our rating on Beijing New Building Materials Public Ltd. Co. may be constrained by its parent's further hike in leverage.

Capital goods

9. Great CapExpectations: Tech, Utility Spending Power Capital Goods Revenue Growth In 2025, Jan. 14, 2025

• Technology, media, and utilities issuers will likely continue to increase capital spending in 2025 despite persistently high interest rates.
• We expect about a 4% increase in capital goods revenue behind a 4.2% increase in global capital expenditure. The Americas, driven by the U.S., will outpace Europe, the Middle East, and Africa, and Asia-Pacific.
• Tight monetary policy in the U.S., which typically cools industrial activity, remains a risk.

Credit trends and market liquidity

10. Default, Transition, and Recovery: Europe And The U.S. Undermine 2024 Drop In Global Corporate Defaults, Jan. 17, 2025

• Global corporate defaults reached 145 in 2024, down from 153 in 2023, but up from the five-year average of 136. In the U.S. and Europe the number of defaults was elevated and both were above 2023 levels.
• Distressed exchanges accounted for 54% of defaults in 2024, the highest percentage since 2009.
• The media and entertainment, consumer products, and health care sectors led the defaults by number, accounting for 43% of total defaults, while the telecommunications sector had highest cumulative amount of defaulted debt.
• The global corporate default rate is likely to fall slightly to 3.5% by September 2025 from 4.0% in November 2024.

11. Ratings Performance Insights: 2024 In Review, Jan. 13, 2025

• Rating actions: 1. Rating performance trends improved in 2024, primarily due to a sharp drop in downgrades (-21%). Meanwhile, positive outlook and CreditWatch revisions exceeded negative ones by over 35%, signaling that positive trends will likely continue into 2025. In 2024, 80% of downgrades were on speculative-grade issuers.
• 2. Financial institutions (41) had the highest year-over-year increase in upgrades, up over 240% compared with the year prior. A large majority of these upgrades came from Europe (59%) due to good profitability, sound liquidity, and robust capitalization supported by the macroeconomic environment.
• 3. Downgrades were most notable in the U.S., which had 8% more downgrades than upgrades, mainly due to a 27% increase in downgrades in the fourth quarter. Meanwhile, all other regions saw positive upgrade-to-downgrade ratios, with Asia-Pacific exceeding nearly 3:1.
• Rating bias: 1. Negative bias (the percentage of issuers with negative outlooks or ratings on CreditWatch negative) declined in most regions in 2024, signaling a likely future drop in negative rating actions. However, negative bias in Asia-Pacific increased to 6.8% from 6.0%, driven by negative outlook and CreditWatch revisions on financial institutions, homebuilders, and utilities.
• 2. The chemicals, packaging, and environmental services sector had the highest year-end negative bias at 25.1%. This was followed by the automotive sector (19.8%), which also saw the highest year-over-year increase due to weak sales growth from higher borrowing costs, elevated new vehicle prices, and regional electric vehicle adoption disparities.
• 3. The health care sector saw the greatest improvement in negative bias during the year, falling 8.9 percentage points to 14.5%, after have the highest negative bias in 2023.
• 4. Sovereigns had the highest positive bias at year end (18.1%), while the high tech sector saw the largest increase in positive bias, rising to 7.9% from 1.9% in 2023.

12. Sukuk Market: Strong Performance Set To Continue In 2025, Jan. 13, 2025

• We expect global sukuk issuance to reach about $190 billion to $200 billion in 2025, with foreign currency-denominated issuance contributing $70 billion to $80 billion.
• Total sukuk issuance amounted to $193.4 billion at year-end 2024, slightly down from $197.8 billion a year earlier but with a significant increase in foreign currency-denominated issuance.
• Our forecasts assume no disruption from new standards, no major shift in global liquidity compared with our base-case expectations, and no major increase in geopolitical risk in the Gulf Cooperation Council (GCC) region that could derail the economic performance of top issuers' countries of domicile.
• Due to evolving Sharia requirements, we note that some structures used by issuers in the GCC may contain additional risks for investors compared with conventional issuance.

Cross sector

13. Asia-Pacific Consumer Outlook 2025: Some Pain, Some Gain, Jan. 21, 2025

• We expect the consumer sentiment trends that played out across Asia-Pacific in 2024 will continue in 2025, with steady retail growth across major countries of coverage.
• Regional rating outlooks are diverging. 1. China: A net negative trend is worsening among entities within our coverage, driven by demographics (such as the declining birth rate) and consumer trading-down patterns, which are hitting luxury, travel-specific retail, and volume sales of premium products. 2. Japan: Rating trends should remain stable in 2025 supported by solid cash flows among entities. This is despite a slowdown in domestic revenue growth as consumers learn to cope with 40-year high inflation. Higher labor and logistic costs could hinder improvement in profitability in 2025. 3. Pacific: On a brighter note, the Pacific region should see higher household purchasing power flowing from falling interest rates. This is more so for Australian consumers, which will benefit from a resilient labor market, recent tax cuts, and government stimulus to alleviate inflationary pressure.
• Margins are flattish for larger players. Corporates are focusing on cost efficiency to counter raising wages (in Japan and Australia), and/or downtrading. Larger corporates tend to have the resources to invest and subsequently roll out new products to maintain or grow their market share. In general, smaller players in the local markets are losing share; many are exiting markets entirely as unfavorable cost structures makes operations unsustainable.
• Key watch points: 1. China: Low utilization of government stimulus due to soft consumer demand and unhealthy price competition. 2. Japan: Pressure from activist shareholders that may prompt corporate realignments such as mergers, acquisitions, or alliances. 3. Pacific: The outcome of regulatory scrutiny of supermarket operators, with a focus on pricing and marketing practices.

14. Asia-Pacific Credit Outlook 2025: Cutting Through The Noise, Nov. 13, 2024

• A noisy backdrop. U.S. President-elect Donald Trump's historic win will color Asia-Pacific's credit landscape. While still unknown, prospective trade and foreign policy could renew tensions between the U.S. and China, and that may hit trade-oriented Asia-Pacific. The region's issuers will be tested as they navigate more policy and market volatility through 2025.
• More complications. Higher trade tariffs on China's imports to the U.S. will hit China's export growth and exacerbate deflationary pressures. Although authorities' recent measures have provided some relief for property sales and prices, a large glut remains in lower-tier cities. Pressure on downstream sectors, such as building materials, construction and metals, remains tight. Meanwhile, contained stimulus by Chinese authorities underlines discipline.
• Uncertainty abound. Trade and immigration policies by the upcoming U.S. administration could undo disinflationary momentum in the U.S. Should the Fed slow the pace of monetary easing, Asia-Pacific's central banks could follow suit amid concerns on capital outflows. All-in financing costs may stay elevated, hitting credit headroom. Furthermore, weaker home currencies could tilt borrowers back to onshore funding channels.
• Deteriorating net outlook bias. Entering 2025, the net rating outlook bias for Asia-Pacific issuers slipped to negative 3% as of end-October (August 2024: negative 2%). The chemicals, real estate, building materials and retail sectors have the largest negative outlook percentages. With the credit landscape remaining nuanced, a wedge between winners and losers is widening. Volatility is set to rise amid compounding headwinds from geopolitical tensions and financing challenges.

15. Emerging Markets Monthly Highlights: U.S. Policy Uncertainty Guides Market Stance, Jan. 15, 2025

• Inflation eased in most emerging markets (EMs) in 2024, though the median remains above most central bank targets. Food inflation dropped, except in India and some Sub-Saharan Africa's economies. Energy prices rose in Latin America (LatAm) due to subsidy cuts in some cases, but declined in Asia and in Europe, the Middle East, and Africa (EMEA).
• Most EM currencies depreciated in 2024, particularly in Q4, driven by rising U.S. inflation expectations and the potential for less Fed rate cuts. LatAm currencies were most affected, while idiosyncratic factors hit EM EMEA. The 2025 outlook remains cloudy given uncertainties over U.S. rates and trade policies, as well as downside risks to growth.
• EM central banks remain cautious amid U.S. trade and fiscal policy uncertainty, scaling back rate-cut expectations. The Fed's policy remains critical, as it could intensify capital outflows from EMs that ease rates too aggressively. Brazil diverges, hiking rates by 225 basis points (bps) since September 2024 due to fiscal concerns.
• EM rating performance pointed to credit resilience in 2024, given the low number of downgrades from the historical perspective and positive sovereign ratings/outlook revisions. While supported by the U.S. soft landing, credit conditions face challenges from U.S. protectionism in 2025.
• The amount of rated bond issuance in EMs was higher in 2024 than in the past three years. Largely fixed-rate issuance, with a growing reliance on hard currency. However, benchmark and corporate yields rose in December and are 55 bps higher than in September 2024, mirroring the substantial geopolitical and policy uncertainty surrounding EM markets.

16. EU Banks Defy Headwinds In The Auto Sector, Jan. 14, 2025

• European carmakers face weak demand, stiff competition from Chinese manufacturers, and pressure on profitability from the transition to electric vehicles (EVs), challenging their business models.
• Several large EU banks--including Commerzbank, CaixaBank, Erste Group Bank, and UniCredit--have notable corporate exposures to the European automotive sector and its suppliers. That said, we expect banks' earnings will comfortably absorb potential additional credit losses from this sector.
• Potential spillovers from a further deterioration in the car sector pose a downside risk to the asset quality of banks in Germany, Sweden, and Central and Eastern Europe (CEE), where the car industry contributes significantly to GDP and employment.

17. Banking Brief: CEE Banks Can Stomach Headwinds In The Auto Industry, Jan. 14, 2025

• While Central and Eastern European (CEE) banks have limited direct exposure to the automotive industry, current challenges in the sector could impair the broader regional economy and have ripple effects on banks' credit losses.
• That said, CEE banks are well-capitalized, highly profitable, and have improved asset quality metrics, which will provide a solid foundation if stress arises in their automotive portfolios.

18. Credit Cycle Indicator Q1 2025: The Recovery Could Be More Elusive For Some, Jan. 15, 2025

• Our forward-looking credit cycle indicators (CCIs) continue to signal a potential credit recovery in 2025, reflecting rising leverage and accommodative financing conditions.
• The divide between the corporate and household sectors continues. Improving earnings growth and supportive market conditions are buoying corporate credit, while household credit is still undergoing a correction.
• Macroeconomic and geopolitical risks will test some markets more, spelling diverging recovery prospects across geographies.

Economics

19. Economic Outlook Asia-Pacific Q1 2025: U.S. Trade Shift Blurs The Horizon, Nov. 25, 2024

• While China's stimulus measures should support growth, we expect its economy to be hit by U.S. trade tariffs on its exports. In all, we now project 4.1% GDP growth in 2025 and 3.8% in 2026; that's 0.2 percentage point (ppt) and 0.7 ppt lower than our forecast in September.
• Asia-Pacific growth will be impeded by slower global demand and U.S. trade policy. But lower interest rates and inflation should ease their drag on spending power. And in emerging markets, robust domestic demand growth is buoying GDP growth.
• Swings in capital flows driven by shifts in expectations about U.S. interest rates and trade policies require central banks to be vigilant and cautious. We expect Asia-Pacific central banks to take their time bringing policy rates down.

20. Economic Outlook Canada Q1 2025: Immigration Policies Hamper Growth Expectations, Nov. 26, 2024

• We expect GDP growth of 1.2% in 2024 (unchanged from previous forecast) before accelerating to 1.7% in 2025 (was 2.0%).
• A substantial deceleration in population growth next year as new immigration curbs take effect will counter any boost to the economy from lower borrowing costs. Stalling population growth will simultaneously reduce aggregate demand and the labor supply.
• We anticipate the Bank of Canada will remain on course to steadily cut rates until it reaches 2.25% by the middle of next year.
• The key risk for Canada's economy from the U.S. presidential election is that a Trump administration could pull out of the United States-Mexico-Canada Agreement, leaving Canada subject to any U.S. import tariffs.

21. Economic Outlook Emerging Markets Q1 2025: Trade Uncertainty Threatens Growth, Nov. 26, 2024

• A likely increase in trade protectionist policies among major economies will hurt GDP growth in most emerging markets (EMs) in the next couple of years, but the magnitude of the impact will depend on those policies' details, which will become clearer in the coming months.
• For now, we assume only a modest increase in tit-for-tat tariffs between the U.S. and China in 2025 and no new tariffs for the rest of the world, which would produce a relatively modest net impact on GDP in most major EMs outside of China.
• However, downside risks to our forecast are high, and potential tightening in financial conditions because of trade-related uncertainty adds another hazard.

22. Economic Outlook Eurozone Q1 2025: Next Year Will Be A Game Changer, Nov. 26, 2024

• We project eurozone GDP growth of 0.8% in 2024 and 1.2% in 2025, with Germany lagging eurozone peers, and Spain continuing to outperform. Changes to our previous forecast largely reflect revisions of past data. Due to a more pronounced drop in energy prices, we expect inflation will be marginally lower in 2025 than we had anticipated (2.4% versus 2.5% previously).
• A long period of very stable macroeconomic forecasts might come to an end as new leaders in the U.S., the EU, and Germany could take decisions early next year on tariffs, defense, and general spending that could reshape the economic outlook.
• We anticipate the European Central Bank (ECB) will cut rates more quickly than we had previously expected due to persistently weak confidence and better visibility on the disinflation trajectory. That said, we do not expect that the extent of the rate cuts will exceed our previous forecast. We now project that the main policy rate will reach 2.5% before the summer of 2025, compared with our previous expectation of September 2025.

23. Global Economic Outlook Q1 2025: Buckle Up, Nov. 27, 2024

• Even before taking office, a second Trump administration is already moving the macro-financial needle and raising downside risks for the global economy. The degree of ultimate policy implementation is a key unknown.
• Our preliminary policy read on the new U.S. administration is that positive growth effects will be minimal, inflation pressures will rise, and the Fed is likely to stop cutting rates earlier. This will lead to tighter financial conditions, a stronger dollar, and a more complicated macroeconomic picture elsewhere.
• Owing to a "wait and see" approach, our GDP growth forecasts have not moved much since the previous publication, other than incorporating changes related to base effects.
• Risks include the full implementation of the proposed U.S. agenda on taxes, trade, and immigration; the end of resilient consumer spending and labor demand; and bond market stress. AI is an upside.

24. U.K. Economic Outlook 2025: Monetary Policy And Trade To Offset Fiscal Impetus, Nov. 26, 2024

• After a slower second half this year, the U.K. economy looks set to gather steam on looser fiscal policy, with GDP rising by 1.5% in 2025 versus our September forecast of 1.2%, and maintaining a similar pace through 2027.
• But we now expect the Bank of England (BOE) to cut its rate only four times over the next quarters to 3.75% by the end of 2025, as a result of stronger jobs growth and inflation stemming from higher government spending.
• These factors will likely dilute the economic impulse of the policy stimulus at a time when geopolitical risks and the potential for trade frictions have increased following the U.S. elections, though the impact on the U.K. is minimal at this stage.

25. Economic Research: Slowing Immigration Could Derail U.S. Economic Growth Momentum, Jan. 17, 2025

• U.S. population growth is one of the main factors behind the positive economic growth surprises the last two years. And net immigration accounted for more than 80% of the population growth, more than twice the usual share.
• A policy shift by the incoming administration toward stricter curbs on illegal immigration, as well as slowing legal immigration, will sharply reduce population growth in the near future.
• As a result, the economy's growth capacity could decline by as much as half a percentage point (compared with the last two years)--in the absence of a rise in labor productivity growth and the employment rate of the working-age population.
• Lower net immigration will constrain labor supply growth, hurting labor-sensitive sectors where immigrants account for a large share of the workforce, such as construction, hospitality, and agriculture.

26. Economic Outlook U.S. Q1 2025: Steady Growth, Significant Policy Uncertainty, Nov. 26, 2024

• We forecast the U.S. economy to expand 2.0% in the next two years--incorporating partial implementation of Trump's proposed policies--following 2.7% growth this year.
• We expect the Federal Reserve to reduce the federal funds rate more gradually than what we had considered in our September forecast update and reach an assumed neutral rate of 3.1% by fourth-quarter 2026 (was fourth-quarter 2025 previously).
• Uncertainty around our forecasts is high given unknowns about how much of President-elect Trump's campaign promises will materialize.
• Trump's policy proposals from his campaign, at face value, could result in higher inflation in the near term and lower growth in the medium to long term. And the probability of a disruption to the Fed's easing bias over the next two years has risen.

Engineering and construction

27. China Engineering & Construction Sector 2025 Outlook: Difficult Industry Conditions Could Tighten Rating Headroom, Jan. 15, 2025

• What do we expect over the next 12-24 months? Growth of fixed asset investment (FAI) to moderate in 2025 in China on sluggish real estate investment and slowing manufacturing investment. Stagnant revenue growth of rated E&C companies at 1%-3% in 2025, versus about 0%-2% in 2024. Modest improvement in funding conditions of engineering and construction (E&C) project owners flowing from supportive government policies.
• Credit implications: Margin pressure remains high due to intense competition and elevated receivables impairment ratios among entities. The operating cashflow of rated E&C companies could moderately improve on shorter receivables collection cycle. Rated E&C companies to slightly deleverage as their EBITDA expands and debt growth slows. The key risks to our base case are intensifying pricing pressure, and the possibility that the funding conditions of project owners may not improve as we now expect.
• Rating trends: Diverging rating headroom of rated E&C companies. Some of their financial headroom (such as BCEG, PCCC, CSCEC, CRCC*) narrowed in 2024 on prolonged receivables turnover.

Environmental, social , and governance

28. Sustainability Insights | Research: Decarbonizing European Real Estate Won't Be Easy, Jan. 20, 2025

• Rated real estate companies in Europe are targeting a 40%-50% reduction of emissions by 2030. This represents a 15%- 20% energy efficiency improvement, which is in line with updated regulatory requirements. Decarbonization solutions are already generally available, but companies will need to continue to renovate their portfolios to meet regulations and their own goals.
• Renovations to meet the regulatory efficiency requirements could cost rated companies €10,000 to €30,000 per residential unit for the lowest-performing properties and based on an apartment size of 80 to 100 square meters (sqm). The amount depends on the property's condition and location; renovation is cited as a cheaper and quicker solution overall than new construction.
• Companies with portfolios of old fossil-fuel-heated buildings face the biggest challenges due to poorer insulation and high use of fossil fuel energy to heat buildings, implying higher investment needs. Overall credit impacts have so far been limited. This is because, in each European market, we believe the residential real estate companies we rate have: the financial capacity to invest in retrofitting; a strategy to address the least energy-efficient buildings; and the potential to pass on some of the resulting costs to the tenants.

29. S&P Global's Top 10 Sustainability Trends To Watch In 2025, Jan. 15, 2025

• Geopolitical unrest is reshaping trade, supply chains and international relations.
• Climate change is accelerating and is indifferent to politics.
• The energy transition is advancing, albeit unevenly.
• Many companies continue to dedicate resources to sustainability and climate strategies even as others walk back their messaging or pull back on their goals.

Financial institutions

30. How Banks In Selected Emerging Markets In EMEA Will Cope With Lower Rates, Jan. 13, 2025

• In general, lower rates will dent the net interest income of banks in selected emerging markets in EMEA.
• Yet higher lending growth, improving asset quality, a lower cost of risk, or higher reliance on local funding sources will protect banks' bottom lines.
• Banking systems that depend more on external funding--such as those in Turkiye, Qatar, and, to a much lesser but increasing extent, Saudi Arabia--will benefit from the lower rates and higher global liquidity as this will make funding cheaper.
• Markets in Central Asia and the Caucasus and most African countries will likely see a limited effect from decreasing interest rates and should be able to maintain their margins.
• The key factors to watch are management reactions, balance-sheet repositioning, and shifting global narratives about monetary easing resulting in fewer interest rate cuts.

31. Banking Brief: Employment, Not Home Prices, Shape Hong Kong Mortgage Quality, Jan. 16, 2025

• The hit to Hong Kong residential prices over the past few years won't knock on to banks.
• History shows sharp falls in economic growth or jumps in unemployment rates are bigger factors for credit performance on Hong Kong residential mortgage loans.
• We expect the city's banks will face minor but manageable pressure on such portfolios in the next two years.

32. Italian Banking Outlook 2025: Big changes ahead, Jan. 15, 2025

• Consolidation will be the main theme in 2025, following Unicredit's moves to acquire Banco BPM and Commerzbank, Banco BPM's offer for Anima, and shareholders repositioning on Monte dei Paschi. The banking sector's structure will likely change materially, paving the way for stronger players. The obstructive shareholder structure of several banks could influence the deals' outcome, but consolidation looks to be inevitable, in our opinion.
• Economic conditions are likely to improve slightly, as the impact of lower rates and Next Gen EU funds could propel consumption and investment. We expect GDP to increase 0.9% in 2025, compared with 0.5% in 2024. We might see a small pickup in lending, primarily from residential mortgages and corporate loans. We anticipate loan growth of 1%-2% in 2025.
• Some asset quality problems might emerge for small and midsize enterprises (SMEs) after years of historically low defaults. Given the over €200 billion of government guarantees on loans, the impact on credit losses will be contained.
• The banking sector is likely to maintain sound profitability in 2025, slightly below 2024's peak. The different among banks will become increasingly apparent, particularly in terms of revenue and efficiency. Dividend payouts will remain generous, although most banks will continue building capital buffers. However, in the consolidation process, bidders might eventually have to use more capital to get deals done.

33. Kuwait Banking Sector 2025 Outlook: Economic Recovery To Boost Performance, Jan. 8, 2025

• We expect Kuwaiti banks' asset quality will continue to improve thanks to a stronger economy and lower interest rates.
• We foresee stronger lending growth that will somewhat compensate the negative impact of lower interest rates on profitability.
• We expect geopolitical risk to remain in check and believe that the banking system is well positioned to deal with a potential escalation of geopolitical stress.
• Risks from high exposure to real estate remain, while the sector is benefiting from visa relaxations.
• We expect Kuwaiti banks to maintain stable and strong capital buffers and robust funding profiles.

34. Portuguese Banking Outlook 2025: On Solid Footing, Jan. 21, 2025

• Portugal's economic growth will exceed that of the eurozone average. The coalition government will likely maintain its commitment to fiscal discipline and public debt reduction.
• Banks will maintain solid profitability in 2025, even if it will be lower than over 2023-2024. Revenues are set to decline as banks' net interest margins compress amid lower interest rates.
• Portuguese banks will remain more efficient than peers, given their streamlined operating structures.
• Asset quality will remain resilient, while credit costs will remain fairly stable, thanks to the supportive economic environment and borrowers' manageable debt levels.
• Regulatory capital is now aligned with the eurozone average and should consolidate at current levels. Banks will prepare to comply with the new 0.75% countercyclical buffer applicable from Jan. 1, 2026.
• Banks will remain mostly deposit-funded and maintain ample liquidity.
• A larger player could emerge if Novo Banco is put on sale and acquired by a domestic competitor.

35. Qatar Banking Sector 2025 Outlook: Resilient Performance To Continue, Jan. 8, 2025

• Qatari banks are profitable and benefit from strong capitalization and adequate liquidity, a trend we expect to continue with an only modest drop in net interest margins owing to interest rate cuts.
• The system's external debt is about one-third of domestic credit, but the completion of many infrastructure projects will mean lower funding needs. The government's highly supportive stance toward its banking sector mitigates the risk of external debt outflows if geopolitical risk escalates.
• The significant increase in country's liquefied natural gas (LNG) production and its spillover effect on the non-hydrocarbon economy will support the credit growth in the next two to three years.
• We anticipate local funding sources will increasingly fund credit growth on the back of slower public sector deleveraging.
• The system's leverage is elevated and almost 40% of total domestic credit is in the high-risk and cyclical real estate and related services.
• Continued pressure on real estate prices could accelerate the migration of stage 2 loans to nonperforming loans (NPLs) at some midsize banks, but public-sector initiatives and interest rate cuts will help prevent a more severe deterioration in asset quality.

36. Saudi Arabia Banking Sector Outlook 2025: Vision 2030 Momentum Continues, Jan. 20, 2025

• We project solid real GDP growth as Saudi Arabia diversifies its economy beyond oil, with non-oil sectors gaining prominence.
• Growth will be increasingly driven by construction and the services sector as Vision 2030 projects ramp up.
• Corporate lending is set to drive credit growth, supported by a strong project pipeline, while lower rates could boost mortgage lending.
• We expect cost of risk to normalize owing to the supportive economic environment and declining interest rates. That said, higher private sector leverage may have adverse implications for asset quality over the longer term.
• Banks are poised for stable profitability in 2025 as the volume effect compensates for lower margins.
• We expect Saudi banks to continue resorting to international capital markets to help fund growth related to Vision 2030.

37. South Africa Banking Outlook 2025: Improving Economic Prospects Will Boost Banks’ Performance, Jan. 17, 2025

• Improving economic reform momentum driven by the Government of National Unity (GNU), combined with continued progress in addressing infrastructure deficiencies, could bolster South Africa's economic prospects.
• Credit conditions are set to ease gradually through 2025 amid moderating inflation and interest rate cuts.
• We forecast that growth in credit to the private sector will accelerate and hover around 8%-9% in 2025, mainly stemming from investments in infrastructure, including logistics and renewable projects. Private sector credit to GDP will slightly increase to about 80% from an estimated 76% in 2024.
• We expect the banking sector's credit loss ratio to normalize below 1%, closer to historical trends, in 2025 as pressure on households' disposable incomes eases because of lower inflation and decreasing interest rates.
• We anticipate that the sector will maintain strong average return on equity of 15%-16%, despite lower interest rates, supported by higher credit growth, noninterest income, and lower provisioning.

38. Swiss Banking Outlook 2025: Strong Foundations, New Pressures, Jan. 20, 2025

• Banks in Switzerland benefitted from record-high profits in 2024 thanks to higher interest rates, a resilient economy, and historically low credit losses.
• In 2025, we expect lower interest rate revenues and pressure on banks' cost bases.
• At the same time, we anticipate that the trend for low risk costs will persist in 2025, especially as Switzerland has the lowest economic risk score globally in our Banking Industry Country Risk Assessment (BICRA).
• In our base case, we expect Swiss banks to maintain stable and strong capital buffers above the global average, as well as sound earnings-retention capabilities.
• We expect Swiss banks to adapt to new and tighter funding conditions following the Swiss National Bank's (SNB's) policy changes, leading to higher funding costs and lower margins.
• Deliberations about changes to the country's regulatory framework will continue throughout 2025 as parliament will discuss lessons from the collapse of Credit Suisse.

39. United Arab Emirates Banking Sector 2025 Outlook: Balancing Growth And Risks Amid Economic Expansion, Jan. 8, 2025

• Banks in the United Arab Emirates (UAE) have benefitted from a strong domestic economy, leading to improved asset quality metrics and lower credit losses, which we anticipate will persist in 2025 and which supports a positive economic risk trend in our Banking Industry Country Risk Assessment (BICRA) for UAE banks.
• After strong performance in the past two years, we expect the sector's robust earnings to dip slightly in 2025 and the lending book to continue expanding as monetary policy eases.
• Although the UAE could be affected by regional geopolitical tensions and oil price volatility, we believe risks will remain in check.
• We expect UAE banks to maintain stable and strong capital buffers, robust funding profiles, and continued government support, which will underpin their resilience.

40. U.K. Banking Outlook 2025: Entering The Year With Solid Earnings And Balance Sheets, Jan. 20, 2025

• Our stable outlooks on all U.K. bank ratings show that we expect banks to remain resilient over 2025, possibly with limited positive rating actions over the medium term if a more supportive economic outlook and banks' controlled credit risk appetites lead to an improvement in our BICRA economic risk trend.
• Strong earnings driven by stable margins should allow rated U.K. banks to maintain their robust capital positions and prioritize distributions via share buybacks and special dividends.
• Despite mixed reactions to the government's autumn budget, we think the U.K. economy will deliver steady growth in 2025 on the back of expected rate cuts and a strong labor market. These factors should support banks' loan growth and asset quality.
• We expect credit loss charges to normalize for banks, with a steady but manageable flow of lending into arrears and overall cost of risk increasing toward the long-run average.
• Historical motor finance commissions remediation could dent earnings and shareholder distributions for rated banks with material exposures, but we expect minimal impact on their capital ratios.
• We expect rated banks' funding and liquidity metrics to remain stable as deposit migration slows and central bank borrowing is refinanced using existing liquidity and limited wholesale issuance.

41. U.S. Bank Outlook 2025: Entering A New Phase Under A New Administration, Jan. 14, 2025

• Key expectations: 1. The U.S. banking industry has performed well after rebounding from 2023's large failures and should generate relatively good earnings in 2025.
• 2. The economy will likely grow about 2%, but with a potential for greater-than-anticipated inflation and rates in the near term, and slower growth in the medium term amid uncertainty about how much of President-elect Trump's campaign promises will materialize.
• 3. Regulators will likely continue working on changes to capital, liquidity, stress testing, and resolution rules, but the direction may change materially depending on the Trump administration's regulatory appointments and general stance on regulation.
• Key assumptions: 1. Incremental rises in expenses and provisions may offset growth of net interest income and fee income. Overall, we expect bank s to generate a return on common equity of 10.5%-11.5% in 2025 versus a projected 11.0%-11.5% in 2024.
• 2. The Federal Reserve will reduce rates gradually, but the probability of significant rate cuts has fallen. Long-term rates will likely decline less than the Fed's target rate, which may support NIM but hurt loan growth.
• 3. While the probability of significant regulatory tightening will decline materially with new appointments to regulatory bodies, existing key prudential regulations, particularly on the largest banks, will not be materially weakened.
• Key risks: 1. The economy slows materially, inflation remains high, global trading partners retaliate to tariffs, and market valuations post sharp declines.
• 2. Long-term rates remain high or increase, adding to unrealized losses on banks' securities and pressuring asset quality.
• 3. The substance and tone of prudential bank regulation eases more than we anticipate, allowing for greater risk taking.
• 4. Private credit and nonbank credit intermediation in general continue to grow materially , adding to systemic risk.

Infrastructure

42. Southern California's Historic Wildfire Destruction Puts Heat On North America Investor-Owned Utilities’ Credit Quality, Jan. 16, 2025

• Unless North America utilities enact significant wildfire mitigation protections, our ratings on investor-owned utilities with substantial wildfire exposure will likely come under pressure in the coming years.
• Deadly wildfires in Southern California have burned thousands structures and total economic damages could surpass $250 billion.
• We have adjusted ratings, business risk profiles, rating modifiers, and raised downgrade and upgrade thresholds for many exposed investor-owned utilities.
• Wildfire litigation risk is more problematic than the risk of damage to a utility's infrastructure assets.

43. 2025 U.S. Transportation Infrastructure Activity Estimates: Generally Steady Demand And Growth, Jan. 9, 2025

• Our recently updated U.S. economic forecast for 2025 incorporates an expected slight cooling of real GDP growth to 2.0% from an estimated 2.7% for 2024, which we believe will continue to slow growth in demand measures to rates comparable with pre-pandemic averages, though not enough to negatively affect operations or financial performance across transportation modes.
• Although we expect volume growth for enplanements, port containers, transit ridership, and vehicular traffic will fall compared with recent years, we believe activity across most modes of transportation will continue to steadily increase from 2025-2027.
• Our updated activity estimates show public transit ridership potentially plateauing at about 90% of pre-pandemic levels by 2027 (absent outside influences that could stimulate transit ridership, such as employers limiting their employees from working from home and congestion pricing), and enplanements, port containers, and vehicular traffic generally growing and remaining above pre-pandemic levels for 2025-2027.

Insurance

44. Insurers Can Absorb Losses Amid Escalating Los Angeles Wildfires, Jan. 10, 2025

• Early estimates suggest insured losses from the wildfires spreading across Los Angeles (LA) County are significant, potentially matching the about $16 billion from the 2017 Tubbs Fires in Northern California.
• Significant wildfire losses in the first two weeks of 2025 could rapidly deplete the catastrophe budgets of U.S. primary insurers. This early strain may lead to earnings pressure later in the year, especially if 2025 proves to be above-average for catastrophes.
• We, however, believe our rated primary insurers can bear the brunt of the LA wildfire losses, after strong results in the first nine months of 2024 (and likely for the year), combined with a material reduction in policy coverage in wildfire prone areas in California.
• In addition, we believe the impact from the wildfires is manageable for our rated global reinsurers, with no significant effect on earnings due to the event's magnitude and timing.

Leisure and lodging

45. Macao Gaming 2025 Outlook: Operators Have A Strong Hand, Jan. 20, 2025

• 2025 forecast. Macao gross gaming revenue (GGR) to be 5%-6% stronger year on year. Our forecast implies that mass GGR will be 15%-20% above pre-pandemic level. However, junket (or VIP) volume will likely stay near current low levels unless regulations change. Total GGR, therefore, will likely be 80%-85% of 2019 level.
• EBITDA growth. We expect Melco Resorts (Macau) Ltd. and Sands China Ltd. to post faster EBITDA growth due to the ramp-up of new or renovated properties. MGM China Holdings Ltd. has surpassed its pre-pandemic EBITDA. We estimate other Macao operators will recover to about 90% of their 2019 EBITDA levels by 2025.
• Risks. Economic headwinds and potentially higher operating expenses aimed at attracting more premium mass players could impair Macao cash flow and leverage improvement.
• Higher capex. Development projects could delay deleveraging or add incremental leverage. U.S. operators Las Vegas Sands Corp., Wynn Resorts Ltd., and MGM Resorts International will likely bid for three full-scale New York casino licenses.
• Maturities. Operators have sufficient liquidity to address 2025 and 2026 maturities.
• Ratings outlook. 1. Stable for Las Vegas Sands, Wynn Resorts, and MGM Resorts. 2. Positive for Melco Resorts (Macau) Ltd. and Studio City Co. Ltd.

Media and telecom

46. Canadian Telecom Brief: Diverging Strategies Could Make Or Break Leverage In 2025, Jan. 15, 2025

• The Canadian telecommunications industry faces a decisive year in 2025.
• Competitive headwinds, a pro-consumer regulatory framework, and high leverage have induced companies to pursue different strategic plans as they strive for healthy balance sheets.
• Effectively deploying such strategies will not only determine their performances for 2025, but also shape the companies' success in lowering leverage--failing which, ratings pressure could increase.

47. Stemming The Cord-Cutting Bleed: Charter Could Offer A Bandage, Jan. 17, 2025

• We expect the rate of cord-cutting among virtual and legacy U.S. pay-TV providers will improve slightly to a 6.2% drop in subscribers in 2025 and 5.8% in 2026, following a 6.7% decline in 2024.
• Charter Communications Inc.'s new Life Unlimited video strategy, which bundles video and streaming options with the purchase of broadband services, is a key factor.
• We expect continued solid video subscriber growth from virtual multichannel video programming distributors, with YouTube TV leading the charge. Additionally, the proposed merger of FuboTV and Hulu Live could reignite growth among other virtual players, not reflected in our base-case scenario.
• There may also be potential upside to our forecast from Comcast Corp., the only other legacy pay-TV provider with the resources to follow Charter's lead, should it make that move.

48. U.S. Telecom And Cable 2025 Outlook: Convergence, Consolidation, And Disruption, Jan. 14, 2025

• We expect credit metrics for the large U.S. telecom operators to remain stable in 2025 as solid earnings growth and free cash flow generation are offset by shareholder returns and M&A.
• For pure wireline companies, fiber expansion and data from AI applications have sparked a new wave of investment activity and M&A.
• In cable, FWA and FTTH continue to take broadband share, although we believe 2024 was the peak year for subscriber losses. However, smaller cable providers that lack a compelling mobile product, particularly ones that already have high penetration and ARPU, are the most vulnerable to competitive pressures.

Metals and mining

49. 2025 Outlook--China Commodities Watch: Metals And Mining Stay Solid In An Unsteady World, Jan. 15, 2025

• Demand for industrial metals in green-industry markets will alleviate the hit from China's slower growth in 2025. Gold meanwhile is benefiting from safe-haven investments amid heightened geopolitical risks.
• Metals prices will stay high amid supply tightness and high costs, but we believe downside risks are elevated for metal market.
• Upstream miners will continue to plan for significant capital expenditure (capex) and acquisitions to secure valuable assets and leverage on the current high metal prices.
• For our rated companies, gold companies will have narrower headroom as they take on debt to fund expansion plans. Buffers will stay larger for aluminum companies on healthy operating cashflow and smaller capex.

50. 2025 Outlook: China Commodities Watch: Thermal Coal To Hold Steady As Bedrock Fuel, Jan. 13, 2025

• Thermal coal demand growth in China will slow this year due to weaker economic growth and increased substitution from renewable energy.
• Supply will improve following a tight 2024.
• Government policies focused on stabilizing the domestic coal market and ensuring sufficient supply will limit upside potential for thermal coal prices.
• The credit metrics of coal miner we rate will weaken due to declining operating cash flow and rising capital expenditure.

51. 2025 Outlook--China Commodities Watch: The Steel Downcycle Is Still In Play, Jan. 9, 2025

• A weak property sector and moderating growth in infrastructure investment will keep China's steel demand sluggish in 2025.
• Oversupply will persist despite a modest decline in steel production. The trade environment may turn less friendly, narrowing prospects for exports to digest excess supply.
• That said, we expect a moderate recovery in steel spreads on stabilizing steel prices after two years of sharp drops, and declining costs for raw materials.
• Rated steelmaker China Baowu Steel Group Corp.'s leverage will gradually level off on cuts in capital expenditure, improved steel spreads and a stronger product lineup than peers.

Oil and gas

52. Credit FAQ: Renewed Interest In Argentina's Vaca Muerta Shale, Jan. 17, 2025

• Argentine energy companies are gradually returning to international debt markets after years of isolation, given investors' rising appetite.
• This is because several sector players are increasingly active in Argentina's large oil and gas patch, called Vaca Muerta.
• The list of investment announcements related to Vaca Muerta keeps growing and encompasses upstream (oil and gas) and midstream projects that could remove the output growth bottlenecks, which have dogged the formation for many years.

Public finance

53. Subnational Government Outlook 2025: Canadian LRG Revenues Will Play Catchup To Meet Higher Operating Costs And Stabilize Debt Growth, Jan. 16, 2025

• Higher spending on wages and the reduction of the federal government's new immigration targets for nonpermanent residents will lead to smaller operating surpluses for Canadian provinces, with capital investment and refinancing of maturing debt underpinning borrowing in the next two years.
• In the medium term, provincial utilities' higher operating and capital spending, coupled with varying water levels affecting revenue performance, could increase provincial borrowing beyond our forecast.
• S&P Global Ratings expects total provincial and municipal debt will rise by about 6.5% in fiscal 2025 and by 4% annually in the following two years, reaching C$1.3 trillion by the end of fiscal 2027.
• Debt issuance will remain bond-based, dominated by fixed rate provincial bonds issued in the domestic market.

54. China's Upper-Tier Local Governments Are Not Immune From Debt Buildup At Lower-Tiers, Jan. 16, 2025

• Expanding direct debt at the lower tiers of China's local and regional governments (LRGs) pose growing risks to upper-tier LRGs that they may need to extend temporary fiscal support.
• Such risks are more acute for tier-two LRGs, given prolonged revenue disruptions and high debt burden at tier-threes.
• While fiscal frameworks and mechanisms remain in place to segregate obligations between the governmental tiers, we see more chances of risks permeating to upper-tier governments than in the past.
• Upper-tier governments may also exceptionally step in to resolve distressed cases for enterprises owned by lower-tier counterparts, likely via enterprises or financial institutions they control.

55. Subnational Government Outlook 2025: Developed Markets: Regional Differences Intensify, Jan. 16, 2025

• We expect LRGs in developed markets will face a moderate and steady debt increase through 2026.
• Even though public investment needs will remain elevated in many countries, balanced budget rules should induce most subnational governments in Europe to streamline their capital expenditure plans.
• In contrast, Australian states, Canadian provinces, and New Zealand councils are generally unconstrained by external fiscal rules, allowing for higher funding gaps and, consequently, downward credit pressure. In 2024, we downgraded the Province of British Columbia to 'AA-' and Australian Capital Territory to 'AA+'. The ratings on 84% of New Zealand councils have negative outlooks.
• Some large federal regions continue to struggle consolidating their budgets. We have negative rating outlooks on the Province of British Columbia ('AA-'), the State of New South Wales ('AA+'), and the State of North Rhine-Westphalia ('AA').

56. Subnational Government Outlook 2025: Emerging Markets: Borrowing Will Rise On Funding Needs And Capex, Jan. 16, 2025

• Going into 2025, more than three-quarters of our rating outlooks on local and regional governments (LRGs) in the emerging markets are stable.
• LRG debt in China and India remains substantially higher than LRG debt in other emerging markets (EMs). The median ratio of debt to operating revenue for LRGs in other EMs is 35%, vis-à-vis our 2024 estimates of over 200% for Chinese LRGs and 160% for Indian LRGs.
• EM LRGs' operating surpluses should remain elevated, helping to fund capital expenditures--as seen by the sharp drop in balances after capex to levels closer to zero.
• EM LRG gross borrowing is set to increase in the next two years, reflecting pressing funding needs to finance forthcoming amortizations, as well as some capex.
• We project gross borrowing of US$1.5 trillion in 2025, slightly above the 2024 level, with Chinese LRGs and Indian LRGs as the two largest borrowers in U.S. dollar terms.
• Outside of China and India, we expect that gross and net borrowings will remain mostly flat, and we think they'll continue to represent a small portion of the global figures.
• Outside of China and India, it's the Latin American LRGs--LRGs in Argentina, Brazil, and Mexico--that have the highest debt levels in U.S. dollar terms. (They account for 75% of all EM LRG indebtedness when Chinese and Indian LRGs are excluded.) But that's not the case when considering debt-to-revenue burdens.

57. Subnational Government Outlook 2025: Germany: Weak Growth Will Maintain Budgetary Pressure And Require New Borrowing, Jan. 16, 2025

• Subdued tax revenue growth and rising operating expenditures (including due to increased staff compensation and social benefits), will maintain pressure on German local and regional government (LRG) budgets over 2025-2026.
• Deficits might have already peaked in 2024, but we expect them to abate only very slowly.
• Germany's debt brake, despite its balanced budgets principle, allows for limited LRG deficits in a cyclical downturn.
• Net new borrowing has driven annual bond issuance by German LRGs (including their auxiliary budgets) above €60 billion again in 2024 and could push the total outstanding volume of their debt (bonds and loans) towards €800 billion by 2026.
• However, continuing revenue growth should be sufficient to ensure the sector's aggregate tax-supported debt ratio (which we measure as the combined indebtedness of core and satellite budgets relative to operating revenue) remains stable at about 90%.
• A low share of variable-rate debt and LRG portfolios' longer tenors mean an increase in interest rates, observed since 2022, will only very slowly affect German LRGs' debt portfolios.
• Two negative rating outlooks (North Rhine-Westphalia and Saxony) and one positive one (Baden-Wuerttemberg), among the five states rated by S&P Global Ratings, reflect some uncertainty for LRGs, partially linked to Germany's economic position and (geo)political event risk.

58. Subnational Government Outlook 2025: Anticipating A Year Of Change, Jan. 16, 2025

• In 2025 we anticipate a relatively large number of countries outside the U.S. will implement material changes in government financing systems, to address imbalances between revenue sources and spending responsibilities of their respective local and regional governments (LRGs).
• With moderating economic growth and persistent spending pressure, LRG fiscal deficits will stay wide, and global LRG direct debt is on course to reach a relatively high 140% of operating revenues on average by 2026.
• We observe different regional patterns: China's LRGs will take on balance sheet some debt of their enterprises, while Australian states, New Zealand councils, and Canadian provinces will make large investments. In many European and Latin American (LATAM) countries where regional governments must comply with national fiscal restrictions, some spending is being transferred to lower tiers of government or public-sector enterprises, or spending is being cut. The latter could create backlogs in provision of public services and reduction in social and physical investment spending. This, in turn, will weigh on growth prospects and hinder a sustainable improvement in financial indicators.
• In the meantime, more outlooks on rated LRGs are turning negative, suggesting a prevalence of downward rating actions in 2025. As of now, a relatively high number of ratings on the largest borrowers in international markets--three out of 10--have negative outlooks.

59. Subnational Government Outlook 2025: Borrowings Are Still On The Rise, Jan. 16, 2025

• We project local and regional governments' (LRGs) global gross borrowing will continue growing to new peaks.
• This mainly reflects debt-swap transactions in China, between LRGs and their financing vehicles, and to a lesser extent, funding needs in the U.S.
• On a net basis, outside China and the U.S., borrowing will grow fast in India, while Japan will steadily deleverage.
• European countries' total net borrowings will increase but will remain constrained by balanced-budget requirements amid slow economic growth.
• Net borrowings will largely stabilize in Australian states and Canadian provinces, albeit higher than pre-pandemic levels, as they focus on investments in infrastructure to address demand associated with fast-growing populations.
• Borrowings could trend higher due to elevated demographic and geopolitical risks, and national elections taking place in Germany, Canada, and Australia. Due to these stresses, we are already observing a trickling down of financial pressures, for example, relaxation of fiscal policy rules in Europe, allowing for wider deficits at the municipal level.
• We expect gradually reducing interest rates will drive issuers to debt capital markets, with close to $2.3 trillion of bond issuance, covering close to 90% of subnational borrowings in 2025.

60. Subnational Government Outlook 2025: Capital Expenditure Shows Signs Of Slowing, Jan. 16, 2025

• We expect capital expenditure (capex) by local and regional governments (LRGs) across the globe will moderate over 2025-2026, despite modest economic growth and persistent spending pressure.
• Investments across Asia-Pacific will remain elevated compared with those in other regions, mainly because LRGs have large infrastructure spending responsibilities and aren't constrained by strict national limits on deficits and debt ratios.
• As a percentage of GDP, LRGs' capex in Latin America and Europe will remain fairly small on average. European and Latin American LRGs will keep financing most of their investments through budgetary resources, while LRGs in Asia-Pacific and Canada will likely rely more on borrowings.

61. Non-U.S. Social Housing Sector Outlook 2025: Quality Maintenance Constrains Recovery, Jan. 14, 2025

• We consider that non-U.S. social housing providers' (SHPs') focus on the quality of existing homes will continue to delay the development of new homes in most regions. This will lead to reduced debt funding of capital expenditure (capex) over the next three years. We project lower, albeit still high, interest rates, which--in combination with a contained debt increase--should support a gradual strengthening of interest coverage ratios.
• Temporary caps on rent increases that were imposed due to high inflation have been removed in many regions. We project that cost inflation, which lasted for longer than we had expected, will ease. Investments in existing homes will moderate but continue to hinder a more pronounced improvement of SHPs' financial performance.
• The differences among the regions where we rate SHPs are material. We project that the financial performance of French and German SHPs will stabilize at the strongest levels regionally, while the financial performance of Swedish and U.K. SHPs will remain relatively modest. We consider that SHPs' debt metrics will converge because we forecast that French and German SHPs' debt will increase faster than that of their U.K. peers.
• We therefore project that financial indicators across non-U.S. SHPs will stabilize and gradually strengthen in 2025, supporting our view that we are at a turning point in the rating cycle.
• We consider that the negative bias across rated non-U.S. SHPs has reduced and anticipate that our ratings will remain predominantly in the 'A' category in 2025.

62. Subnational Government Outlook 2025: Nordics: Infrastructure Needs Will Keep Investments High, Jan. 16, 2025

• Investment needs for local and regional governments (LRGs) in the Nordics will remain relatively elevated overall, driven by changing demographic structures and the need to expand and upgrade existing public-sector infrastructure, notably within water and wastewater management.
• In Sweden, weaker population growth could slow the rise in LRGs' capital expenditure, but if the economy remains subdued, LRGs won't be able to rely on strong revenue increases to cover spending growth.
• LRGs in Finland face wider funding gaps, with newly created wellbeing services counties needing to implement efficiency measures and rely on state transfers to achieve balanced budgets. In contrast, the shift of responsibility for health care and social services alleviates the pressure on municipalities' financial position.
• We forecast Danish LRGs' tax-supported debt (including guarantees) will increase gradually in nominal terms, owing to district heating companies' investment in the energy transition using LRG-guaranteed debt, but remain low versus that of Nordic peers.
• Because Norwegian LRGs' operating balances are under pressure due to slower tax revenue growth, and investments in local infrastructure remains sizeable, we expect debt accumulation to be high in the coming years.

63. Subnational Government Outlook 2025: Spain: Debt Ratios Are Reducing As Revenue Rises, Jan. 16, 2025

• Despite rapidly rising revenue, we don't expect meaningful improvements in Spanish regions' budgetary performance, with nominal debt set to continue increasing, although debt ratios should improve.
• Although the central government's absorption of regions' debt would improve ratios, this is unlikely to address the structural divergences arising from different levels of funding from the regional financing system.
• Regions' gross financing needs are set to decline due to lower debt repayments and the longer average tenor of debt.
• The central government will remain the regions' main funding source, while bond issuance will stabilize as a proportion of overall funding, with no meaningful changes in issuers.
• Furthermore, interest expenditure is unlikely to strain the regions' budgets, due to a high amount of debt at fixed rates and the gradual decrease in interest rates.
• The reintroduction of fiscal rules will drive local governments' strong performance and continued debt reduction, and they will continue to accumulate cash, in what is already a strong net creditor position.

64. Subnational Government Outlook 2025: Swiss Cantons Are Navigating Budgetary Pressures And Shifting Debt Dynamics, Jan. 16, 2025

• While significant economic and geopolitical risks remain, we think the extremely predictable and supportive institutional framework and robust financial position of most Swiss local and regional governments (LRGs) will enable them to successfully navigate the challenges of the near future.
• S&P Global Ratings forecasts a gradual economic strengthening for Switzerland, with annual GDP growth of 1.5% in 2024-2026, supported by inflation receding further.
• However, we expect some pressure on Swiss LRG budgets, driven by cantonal initiatives to improve attractiveness, the shifting of financial burden under proposed central government austerity measures, and rising healthcare costs.
• As a result, we now anticipate the Swiss LRG sector will post only marginal surpluses over the coming years, creating a need to refinance rather than repay maturing debt.
• Annual Swiss LRG bond issuance surprisingly peaked in 2024, at more than 7 billion Swiss francs (CHF). This was almost double the amount issued the previous year.
• For 2025 and 2026, we forecast gross borrowing in bond format will normalize, falling into a range of CHF4 billion-CHF5 billion annually, supported by limited upcoming bond maturities.

65. U.S. Brief: Los Angeles Wildfires And Variable-Rate Municipal Debt, Jan. 18, 2025

• Los Angeles area wildfires threatens utility-backed debt performance. Ongoing Wildfires pose prepayment risks for municipal bonds backed by California-based obligors.
• Although the extent of the damages is still developing, with some figures estimating as high as $150 billion, credit deterioration has already begun.
• On Jan. 15, we lowered our long-term ratings on 20 municipal bonds issued by the Los Angeles Department of Water and Power, one of the largest variable-rate municipal issuers in the U.S., to 'A' (Power) and 'AA-' (Water) and placed the ratings on CreditWatch with negative implications.

66. U.S. Public Finance Housing 2025 Outlook: The Stable Era Endures, Underpinned By Strong Management, Jan. 16, 2025

• Not-for-profit lenders likely will continue building balance sheets with bond execution. Despite the Federal Reserve's planned monetary easing in 2025, mortgage interest rates could remain higher for longer and keep tax-exempt and taxable debt issuance at all-time highs.
• Federal government support for not-for-profit developers is unlikely to wane in near term. The incoming administration may reconsider federal funding for some health and human service programs, but nationwide housing affordability problems likely will remain a key policy issue.
• Historically, experienced management teams have pivoted to sustain stable financial performance and profitability. We believe not-for-profit lenders and developers could innovate to preserve and develop affordable housing amid rising federal policy uncertainty.

67. U.S. Not-For-Profit Utilities 2025 Outlook: Rough Water Likely Will Underscore Credit Trends, Jan. 15, 2025

• Rising costs will continue to pressure margins. Sector-specific capital and operating costs continue to outpace broad inflation measures and, in many cases, have not been fully passed through to ratepayers. Although some costs have abated relative to recent years, payroll growth, staffing shortages, construction costs, and higher baseline interest rates will continue to drive expenditure increases.
• Capital investment needs are accelerating. Aging infrastructure is one of the most pressing matters in the water utility sector, with many assets nearing or exceeding their useful lives. Asset failures have led to rapid liquidity deterioration, and regulatory and climate hazards will exacerbate capital needs and require proactive operational management.
• Affordability is a widening credit issue, especially for the most vulnerable portion of the population.  The sector has historically been underpinned by strong rate-setting flexibility, but we have observed a greater reluctance to fully pass through costs to ratepayers. This has resulted in narrowing margins and weaker liquidity, which we expect will continue in 2025, given rising revenue requirements and economic headwinds from potential federal policy shifts.

68. U.S. Not-For-Profit Public Power, Electric Cooperative, And Gas Utilities 2025 Outlook: Climate Change, Energy Transition, And Load Growth Underlie Negative Trends, Jan. 14, 2025

• Not-for-profit (NFP) public power, electric cooperative, and gas utilities remain susceptible to negative rating actions because of rising operating expenses and the costs of direct and indirect capital investments. These pressures constrain rate-making flexibility and remain an obstacle to timely and adequate cost recovery.
• The catalysts for increasing costs include utilities' initiatives to strengthen infrastructure to better withstand more frequent and severe extreme weather events, investments to reduce harmful generation emissions and byproducts, and generation additions to support developing technologies' substantial energy requirements.
• Utilities with limited customer bases can face obstacles to efficiently allocating costs, making their financial performance and creditworthiness more vulnerable to cost-induced erosion than those with larger and more diverse customer bases.
• S&P Global Ratings' negative sector outlook reflects its opinion that a subset of the utilities face greater susceptibility to lower ratings, but this view does not indicate expectations of widespread downgrades. Many NFP utilities continue to achieve financial performance that provides latitude to address cost increases without eroding creditworthiness.

69. As Los Angeles Wildfires Burn, Credit Implications For U.S. Public Finance Issuers Are Unclear, Jan. 10, 2025

• Rapidly expanding wildfires in the Los Angeles area might pose significant financial and operational risks for rated entities, especially if not-for-profit electric utilities' infrastructure triggered the fires.
• S&P Global Ratings is monitoring rated U.S. public finance entities in the affected region to assess whether liability claims or disrupted revenues will lead to negative rating actions.

70. U.S. Not-For-Profit Transportation Infrastructure 2025 Outlook: Tariffs May Rock The Boat As The Sector Stays On An Even Keel, Jan. 9, 2025

• S&P Global Ratings' view of business conditions and credit quality across the U.S. not-for-profit transportation infrastructure enterprise (TIE) sector for 2025 is stable, as many asset class operators reach operational high watermarks, work to rein-in inflationary expenditure growth, and navigate often significantly more expensive capital improvement programs. Our TIE asset classes include airports and related special facilities, toll roads, maritime ports, mass transit, parking operators, and federal transportation grant-secured entities.
• Credit quality has largely been overwhelmingly strong as demonstrated financial resilience, rising demand, and positive revenue trends along with rate increases continue to mitigate the impact of higher debt burdens for larger issuers.
• We estimate that most GDP-linked activity metrics (enplanements, containers, and vehicular traffic) in 2025-2027 will settle in the low single digits, fueling generally strong financial performance, with any headwinds coming from broader economic or asset class-specific operational pressures.
• Higher transit ridership growth from a lower baseline is expected to continue and, in some regions, operators will face local funding hurdles as they exhaust their remaining federal aid against a backdrop of waning federal support.

71. U.S. Local Governments 2025 Outlook: A Stable Start To The Year While Prospects Look Precarious, Jan. 8, 2025

• Economic and federal policy uncertainty heightens the importance of fiscal management in preserving credit quality, and could strain U.S. local government finances in 2025.
• Although we don't expect a significant change in the magnitude of downgrades, we do expect fiscal buffers accumulated in the past three years will erode, heightening instability in a sector that has remained remarkably steady since the pandemic.
• Weaker economic growth will make regaining stability more difficult if it's lost. We expect most governments will close any gaps that arise, but only if federal policy shifts don't create economic pressure that makes gap-closing impossible.

72. U.S. States 2025 Outlook: Eyes On Washington, Focus On Budgets, Jan. 7, 2025

• States' credit fundamentals have strengthened, providing financial headroom to navigate potential challenging coming budgetary conditions. In the fiscal 2026 budget cycle, states face increasing costs following a period of inflationary pressure, past wage adjustments, waning federal support, and changes in state-level tax policy.
• This is happening against the backdrop of an expected moderation in the national economy and uncertainty of federal policy implications. Nevertheless, we expect state credit quality to hold fast.

Real estate

73. European Real Estate Companies: Not Yet Fixed, But Improving, Jan. 9, 2025

• Our ratings on 26% of EMEA REITs have a negative outlook, which remains high but is down from the peak of 33% in December 2023. The ratings on 33% of Nordic REITs have a negative outlook, indicating that risks remain for the Nordic real estate sector following the interest rate spike over 2022-2024.
• Geopolitical risks could threaten the sector recovery if they: 1) Lead to unexpected economic deterioration; 2) Prompt a widening of government yields/spreads (thus pressuring asset valuations); 3) Drag on commercial real estate (CRE) investment.
• 47% of EMEA REITs' interest coverage ratios will remain under pressure over 2025-2026, as companies continue to refinance debt maturities at higher rates, but to a lower degree than in 2023-24. Some refinancings will remain difficult.
• Refinancing risks are decreasing. REITs' renewed access to capital markets, after a period of muted transaction activity, is indicative of better pricing and the return of investor interest in debt offerings. Investment market should also resume as funding conditions improve.
• LTV (debt to debt + equity) and debt to EBITDA ratios should decline, thanks to value stabilization and rising revenue and free cash flows.
• Property yields are stabilizing in most real-estate sectors, but we expect further devaluation of assets with rent and/or occupancy pressures, such as 'non-prime offices'. Any material surge in government yields, as a result of geopolitical risks for example, could also delay property yields' stabilization.
• Valuation movements will be driven more by cash-flow expectations than rate movements, with rent continuing to rise over our forecast horizon, albeit at a slower pace than previously.

74. Switzerland Brief: Tax Changes Could Further Overheat The Real Estate Market, Jan. 13, 2025

• The repeal of Switzerland's imputed rental value (IRV), a unique system throughout Europe, could have implications for real estate prices and, by extension, bank revenue.
• With already-material price increases recently and worsening affordability metrics, Swiss real estate prices, which experienced constant upward pressure unlike in neighboring countries, could rise further.
• Initially, Swiss banks could also face lower loan volumes and revenue as incentives to repay mortgages will likely increase.

Sovereigns

75. Credit FAQ: G7 Bond Market Developments With A Spotlight On Gilts, Jan. 17, 2025

• Uncertainties about U.S. trade tariffs and immigration policies--amid persistently high budget deficits in advanced sovereigns--seem to be the principal source of contagion between U.S. and European bond markets.
• The selloff, which started at the end of 2024, has been fairly broad-based across the safe asset space, also affecting sovereigns with comparatively stronger fiscal positions, such as Germany.
• The U.K. has the highest proportion of inflation-indexed debt (23% of government debt) of any G7 borrower.
• In our view, developed market sovereigns, many of which have vulnerable fiscal positions, could face renewed pressure to contain their elevated post-pandemic levels of government debt in relation to GDP.

Structured finance

76. House Price Overvaluation Moderates For Europe's RMBS And Covered Bond Markets, Jan. 20, 2025

• We have updated (for all countries other than the U.K.) our under/overvaluation assessment of European residential mortgage markets, which are used to calibrate our loss severity assumptions for European residential mortgage-backed securities (RMBS) and covered bond rating analysis.
• Overall, overvaluations have moderated, compared with our last update. This is driven by exhibited wage growth combined with, in some jurisdictions, house price declines.
• We have updated our approach to determining under/overvaluation for a specific mortgage market. A region or country will now be in one of six categories, ranging from undervalued to severely overvalued. This is detailed below.
• The updated view also incorporates our forward-looking view of factors that are likely to drive income and house prices, such as interest rates and house price forecasts.

77. Latin America Structured Finance Outlook 2025: Opportunities And Challenges, Jan. 18, 2025

• We forecast Latin America structured finance issuance reaching $35.0 billion in 2025.
• Brazil's macroeconomic landscape is marked by higher level of uncertainties and escalating risks, but we expect rating stability for transactions we rate in the region's largest market.
• There are opportunities for issuance growth in Argentina and Mexico.

78. SF Credit Brief: CLO Insights U.S. BSL Index: 2024 Year In Review; Value In Manager Trades, Jan. 18, 2025

• A year ago, a common topic of discussion was so-called "zombie CLOs," or transactions in their amortization phase with little chance of being reset. Instead, 2024 turned out to be an extremely active year for CLO issuance.
• The market roared back to life and broke records with $201.95 billion of new issuance and $306.94 billion of CLO resets and refinancings during the year, per Pitchbook/LCD.
• An increase in loan prices fueled some of this, with optional redemptions (i.e., liquidations) of existing transactions picking up sharply.
• As a result, currently only about 21% of rated U.S. CLOs are outside their reinvestment periods, 10% lower than a year ago.

Technology

79. Solid IT Demand Bodes Well For Technology Credits In 2025, Jan. 8, 2025

• We forecast global IT spending will grow 9% in 2025, an improvement from the low-8% area in 2024, as AI continues to spur massive data center spending and enterprises renew their investments in traditional hardware.
• Software and IT services (which includes spending on the public cloud) growth will remain solid while semiconductor growth will again exceed the double-digit percent area owing to AI tailwinds.
• U.S. tariffs on technology imports, should they exceed our base case, could seriously constrain IT consumption from consumer-focused PCs and smartphones to enterprise hardware demand. The tech industry is diversifying its supply chain but is still heavily dependent on China.

80. U.S. Technology Sector: Another Attempt At A Cyclical Rebound, Jan. 16, 2025

• Overall IT spending continues to show resilience, above global GDP growth. Strength is overwhelming in AI and cloud, bot non-AI spending is recovering.
• Double-digit percent growth in sight for the semiconductor market in 2025, due t in large part to continued massive spending on AI-related infrastructure including GPUs, and high bandwidth memory.
• However, incremental trade restrictions may prove more disruptive than prior rounds.
• AI spending presents opportunities for data infrastructure providers but also posses risks. Yet to be seen whether software companies will benefit or be disrupted.
• Interest rate path will be key to credit inflection for many highly leveraged tech issuers. Some are distracted by cost-cutting measures rather than focused on growth.

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The Ratings View:

We published the latest "The Ratings View", which spotlights key developments and asset class trends on a weekly basis, on Jan. 15.

This Week In Credit:

We published the latest "This Week In Credit", our data-driven research snapshot that provides forward-looking, actionable insights on weekly market-moving credit trends, on Jan. 20.