2024 global credit outlook is driven by four key themes: Fitch Ratings

The 2024 global credit outlook is driven by four key themes, Fitch Ratings says in a new report. The first is a continued feedthrough of sustained higher interest rates on demand, liquidity, funding and asset quality. Second, an expected sharp slowdown of the US economy. Third is global asset-quality deterioration. Finally, heightened financial market and cross-asset tail risks from potential liquidity events, elevated leverage and geopolitics.

We expect global macroeconomic growth to slow in 2024 as the monetary transmission to the real economy in the US takes greater effect, the property crisis weighs on consumption and investment in China, and European growth only marginally improves. This general macroeconomic deceleration, combined with elevated interest rates underscores what will continue to be a challenging environment for global credit. Our base case includes a monetary policy pivot in the US and eurozone in 2H24, but with policy rates only being cut to 4.75% and 3.75%, respectively.

Credit pressures will be disproportionately felt by leveraged issuers at the lower end of the rating spectrum. We expect leveraged loan and high-yield default rates to rise and lower-rated emerging market sovereigns are likely to see further defaults. Most structured finance asset performance outlooks are deteriorating and over a third of sectors (weighted by size of issuance) have deteriorating 2024 sector outlooks.

Despite the persistent challenging macro-credit environment, the outlook for ratings at the portfolio level has improved. The net Outlook balance has risen for the third consecutive year for both investment-grade and sub-investment-grade credit. Structured finance is a good example, where there is a divergence between our expectation for continued deterioration in asset performance and ratings resilience, with most of the portfolio on Stable Outlook.