Rating Outlooks are close to being balanced, but this comes after 2022 being the second-worst year for emerging-market (EM) downgrades, Fitch said in a release.
Global sovereign credit conditions will deteriorate in 2023 as Fitch Ratings projected recessions in the US and the euro zone, and a rise in government funding costs amid higher interest rates and elevated inflation. World growth will not be meaningfully lifted by China, where the outlook remains constrained by uncertainties surrounding domestic issues.
The average global and EM sovereign ratings reached new lows, at marginally below ‘BBB minus’ and above ‘BB minus’ respectively.
The fiscal benefits of higher inflation were evident in 2022 with revenue outperformance for many sovereigns and lower-than-expected government debt to gross domestic product (GDP) ratios, Fitch said.
It is unclear whether revenue gains will continue next year, but overall balances will be affected by active fiscal responses intended to shield households and companies from higher energy and food prices. The fiscal costs of higher interest rates will be increasingly evident, it noted.
Geopolitical risks remain high. There is as yet no clear path towards reconciliation for Russia and Ukraine, and similarly for China-US relations. Supply chains of traded goods effectively transmit the risks and consequences of these conflicts globally, extending their reach well beyond the principals involved and neighbouring countries, it said.
The 2023 focus with regard to EM sovereign credit stress will be on smaller and frontier markets, where external funding needs are larger relative to foreign-exchange reserves and domestic credit markets are less developed, the ratings agency added.
Fibre2Fashion News Desk (DS)