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  • Ebbing Growth, Rising Risks

    Global economic growth continues to slow and the U.S.-China trade dispute is weighing on business investment. We explore the heightened risks to credit conditions across the globe in a global summary.

    Published: October 1, 2019

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Global Highlights

Ebbing Growth, Rising Risks

Global growth continues to slow as the weakness in manufacturing and trade with still-robust household spending persists. The main driver of this slowdown remains uncertainty around the U.S.-China relationship.

Major central banks have lowered rates to support growth and boost inflation, with actions characterized more as insurance cuts than an easing cycle.

We forecast a continued moderate pace of activity in the near-term with the balance of risks on the downside; labor market developments - still positive - will be key.

S&P Global Ratings' Credit Conditions Committees meet quarterly to look at potential credit risks for borrowers emerging from imbalances and vulnerabilities in the global economy and financial markets. This quarter, the committees are focusing on the implications of a slowdown in economic growth of the major economies and the “lower for longer” interest rate environment. Listen to the regional webcast replays below.

LISTEN TO THE EMEA & AMERICAS WEBCAST

LISTEN TO THE APAC WEBCAST

North America Highlights

Rising Recession Risk Adds To Trade, Rate Uncertainty

Continued trade tensions between the U.S. and China have raised uncertainty amid signs that U.S. economic momentum is slowing, although American consumers seem poised to continue propping up the world’s biggest economy. Also, U.S. financing conditions have generally improved over the course of the year—particularly for borrowers with solid credit quality.

Key Takeaways

  • – What’s changed: Financial market volatility has increased and spreads have widened for borrowers up and down the ratings ladder.

  • – Risks and imbalances: Trade and geopolitical tensions are leading to more frequent and intense bouts of market volatility. 
     
  • – Macroeconomic conditions: While the U.S. expansion is now the longest in history, the economy is showing signs of slowing. Our assessment now puts the risk of a recession starting in the next 12 months at 30%-35%—more than twice what it was a year ago. 

Latin America Highlights

Policy Uncertainty Undermines Growth Prospects

Growth prospects in Latin America continue weakening as policy uncertainty in the region's largest countries increases. We now expect slower growth for the largest economies in Latin America in 2019 and 2020. External conditions are also challenging, with rising trade tensions and geopolitical risks, which could undermine 2020 growth prospects.

Key Takeaways

  • – What’s changed: Investment continues to slump in the largest economies in the region as policy uncertainty prevails. Upcoming elections in Argentina, delays in key reforms in Brazil, and lack of clarity and polemic decisions in Mexico act as a drag on the already fragile investor confidence. Weak global economic prospects and increasing trade frictions also weigh on other economies in the region. 

  • – Sector themes: Weaker growth will probably dent corporations' profits and bank's asset quality.

EMEA Highlights

Lingering in the Lowzone

Weakening economic growth, political and trade tensions, and technological disruption are coloring credit conditions in EMEA. Renewed monetary policy efforts in the region are likely to prevent outright recession, but persistently low and negative interest rates and flat yield curves are posing challenges for the financial sector and companies with large pension liabilities.

Key Takeaways

  • – What's changed: The ECB has gone "all-in" to support growth and underpin inflation. While this should enable the eurozone to avoid a technical recession, the region's reliance on foreign demand makes it particularly vulnerable to further external shocks emanating from trade or the oil market. 

  • – Macroeconomic conditions: Growth prospects in Europe continue to be scaled back as the manufacturing recession spreads to the services sector, particularly in Germany, while the strong construction sector shows signs of peaking. 

Asia-Pacific Highlights

China Slows, Trade Tensions Blow

Credit conditions in the Asia-Pacific are expected to be bumpy. While official interest rates are expected to be lower or kept the same, China's economic slowdown and the U.S.-China tariff war is dampening consumer and lender sentiment. In turn, this is pressing down on revenue and profit growth, intensifying refinancing risk.

Key Takeaways

  • – What's changed: Investor sentiment is tilting more cautious amid heightened geopolitical stress and slower economic growth.

  • – Risks and imbalances: The greatest near-term risk is the strategic conflict between the U.S. and China, with its attendant impact on markets. Other top risks include corporate refinancing and market liquidity, property repricing, and China's debt leverage.

  • – Macroeconomic conditions: U.S.-China trade-tech tensions have intensified and regional growth has come in below our expectations.