(Editor's Note: CreditWeek is a weekly research offering from S&P Global Ratings, providing actionable and forward-looking insights on emerging credit risks and exploring the questions that matter to markets today. Subscribe to receive a new edition every Thursday at: https://www.linkedin.com/newsletters/creditweek-7115686044951273472/)

Following the World Economic Forum's 2025 Annual Meeting, S&P Global Ratings President Yann Le Pallec shares his insights on how geopolitical, artificial intelligence (AI), and climate risks can create opportunities for credit markets.

What We're Watching

The discussion at Davos was focused firmly on the future and the increasingly interconnected risks that are reshaping the global economy and moving markets. It is clear that disruption may pose both potential promising and perilous outcomes for credit conditions. My S&P Global Ratings colleagues and I joined discussions with a wide range of international stakeholders on the theme of "collaboration for the intelligent age" to address rebuilding trust, reimagining growth, recalibrating the energy transition, and other key global challenges.

These discussions highlighted that the only certainty about 2025 is that uncertainty will be constant. The fall in policy interest rates and apparent soft landings in many major economies may deliver more favorable credit conditions, but intensifying geopolitical and trade tensions in an already tumultuous environment may reignite risk-aversion among investors and affect capital flows. Looking at the structural risks that will shape the future of credit, greater pressure from the physical and transition risks associated with climate change, particularly in geographies that are most exposed, are joined by rising systemic risks from digital disruption.

Our contributions to the discussions at Davos aimed to provide essential intelligence on the confluence of emerging and established risks, with a focus on how transparency—accessible ratings, benchmarks, and technical data that provide clarity on markets—can help borrowers and investors as they navigate the increased uncertainty surrounding regional divergences, trade fragmentation, and the path to net-zero.

We heard throughout the week that there is optimism among the world's key finance, business, and government stakeholders for collaboration in tackling global challenges as well as opportunities for innovation across AI implementation and to work with emerging and frontier economies in a changing global landscape.

What We Think And Why

The themes we heard about the most covered the implications for market participants from changes in the U.S. administration, the advantages of the generative AI revolution, and the evolution of the energy transition.

While the approach of the new U.S. administration to the economy may unleash some proverbial animal spirits, the widespread implementation of tariffs could prove to be reflationary. S&P Global Ratings expects the U.S. President will use his executive powers midway through 2025 to impose targeted tariffs on China, with the potential for tariffs to be enacted even sooner on neighboring Canada and Mexico.

From a macroeconomic perspective, such significant uncertainty about the timing, magnitude, and effect of the policy shifts by the U.S. present a number of scenarios. Taking the proposed economic plans at face value, we believe increasingly protectionist trade policies and subsequent international responses will likely be reinflationary—and could lead the Federal Reserve to stabilize (or even increase) interest rates, with significant ripple effects for weaker speculative-grade borrowers.

Without a doubt, the most talked about issue outside of geopolitics was AI as a transformative force for business, the economy, and society. I came away with a new appreciation that the generative AI revolution might be as impactful as the industrial revolution, changing the way businesses utilize technology and talent. Even with recent disruptions within the AI sector itself, demand for the data centers that power AI will continue booming—with the potential to influence credit quality. Companies that overcome AI-adoption challenges and upskill and reskill their talent will align their business on a sustainable path. But leaders will also need awareness of generative AI's risks to ensure this technology is deployed responsibly within their organizations and in partnership with other organizations to strengthen their positions and mitigate contagion.

Finally, changing demographic trends were also center stage—including Africa's long-term growth potential. Countries in sub-Saharan Africa in particular will play a prominent role in this growth due to their demographics, but they face significant challenges from persistently high inflation and political uncertainty. Collaboration across the global community (combining foreign investors, multilateral development institutions, and their own domestic financial institutions) will be required to increase transparency and understanding of African economies, to ensure a balanced funding environment to enable growth and climate adaptation and mitigation efforts.

Our research shows that lower-income countries are disproportionally at risk of economic losses from, and are more exposed to, physical climate risks—yet receive the least amount of investment to transition their economies and build resilience. At S&P Global Ratings, we are committed to providing transparency on our methodologies and ratings to support this collective effort.

What Could Change

After a fascinating week of stimulating discussion, our view remains that global credit conditions are likely to remain supportive in 2025 against this backdrop of structural and thematic change. But any improvement in global credit conditions will be along a narrow path strewn with overlapping risks.

Writer: Molly Mintz