Fitch hails improving outlook for sovereign borrowers

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by Kate Allen

Nation-states are the most improved credits in the world so far this year, according to ratings agency Fitch, but the macroeconomic environment that is powering their recovery is set to wane. Sovereigns saw widespread downgrades in the years after the financial crisis as the global economic downturn and high government debt burdens hit their credit ratings.

Of all the organisations and bodies assessed by Fitch, sovereigns have seen the greatest improvement in their credit ratings in 2017, new research published by the agency on Tuesday shows.

Developed economies in particular are driving the trend, with strengthening global growth, a trade recovery and stabilising commodity prices all helping.

But what Monica Insoll, managing director in Fitch’s credit market research team calls “the most benign credit market conditions in modern history” are set to ease off in the coming years as central banks move to normalise monetary policy and world growth expected to peak at 3.2 per cent next year.

This “could begin to temper the otherwise upbeat rating outlook trend,” Ms Insoll says. Fitch forecasts that in 25 countries government debt as a share of GDP will this year reach its highest level for 17 years, a trend that “would cause debt dynamics to deteriorate unless economic growth accelerates”, the report warns.

A downturn in global growth would increase sovereign debt levels further and put fiscal pressure on governments, according to Fitch. Although on average the outlook is improving across all types of issuer rated by Fitch, it remains negative on a net basis in all sectors except structured finance.

 

Source: The Financial Times Limited 2017.

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