(G. News): Critical Inflation, Rising interest rates remain key Credit Risks

According to the most recent Risk Headquarters report from Fitch Ratings, inflation and interest rates continue to be the most important factors to watch for global credit.

Despite apparent disinflation picking up steam in the US and the eurozone in 2Q23, the rating agency claims that core inflation is still persistent and significantly higher than central bank targets.

Although tougher lending standards and hawkish central bank policy emphasize the outlook for a cyclical deceleration, it was noted that "the underlying macro picture for global credit has improved since the beginning of the year."

Fitch's base-case projections indicate that this will result in a brief recession in the US, modest growth in the eurozone, and growing threats to China's economic recovery.

Therefore, the risks that could have the biggest effects on our rated portfolio over the next two years—our Key Risks for Global Credit—remain roughly the same. There are further risks related to geopolitics, governance, and policy, as well as adverse scenarios for funding, asset valuations, and financial stability.

A emphasis on commercial real estate (CRE) and growing obstacles to China's post-Covid recovery are included in these risks.

According to the latter, the risks to a gradual reacceleration in Chinese GDP are highlighted by second quarter 2023 property data indicating a substantial drop in sales and ongoing constraints facing developers.

According to the report, "US CRE continued to show signs of pressure, with several sizable US mortgage REITs reducing new lending and weaker results from US large and regional banks in second quarter 2023."

The primary long-term and emerging threats are also still the same, with a focus on climate change, demographic issues, cyber-conflict, and the quick adoption of AI as a disruptive technology.

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