Global credit conditions will weaken in 2019 as economic growth decelerates, funding costs increase, liquidity tightens and market volatility returns, Moody’s Investors Service says in a new report.
Trade, political and geopolitical risks will likely escalate as tensions between the US and China heighten. In addition, consequences of slower growth will increasingly thrust globalization and inequality debates into the political arena.
“The slowdown in economic growth will give way to even weaker global credit conditions in 2020, while the multitude of risks on the horizon are increasing both in number and severity,” says Elena Duggar, Chair of Moody’s Macroeconomic Board. “Tightening monetary policy, worsening economic disputes and slower demand from China are three key drivers that will dominate the weaker growth outlook.”
Geopolitical and domestic political tensions will dominate the risk landscape for global credit conditions and credit quality in 2019. Tensions between the US and China will spread far beyond trade disputes, while the risk of the UK withdrawing from the EU without a trade agreement in place has risen. Meanwhile, domestic political risks will continue to weigh on the credit outlooks for Italy, Brazil, Turkey and Argentina.
Advances in digital technologies will lead to productivity improvements and business disruptions as companies face pressure to keep pace with a changing competitive landscape. Meanwhile, cyber risks and data privacy issues will add to operational and reputational risks for governments and industries.
Rapid growth in new environmental regulations, stricter emissions standards, rapid technological advancements and shifting consumer preferences for green and sustainable products will heighten focus on carbon transition risk in 2019. Meanwhile, evolving social trends could develop into challenges and opportunities for governments and industry. For example, the rise in income inequality in the US, could further increase political polarization or lead to sudden policy shifts on issues such as immigration.