Daily Management Review

Global Sovereign Credit Outlook Turns Pessimistic According To Moody’s


11/14/2016




Global Sovereign Credit Outlook Turns Pessimistic According To Moody’s
Moody's Investors Service has said very recently that amid expectations for low economic growth and high public-sector debt in the global economy as a whole, the outlook for global sovereign ratings is negative possibly until 2018.
 
Moody’s said that the largest proportion since late 2012 during the European debt crisis was the sovereigns which were around 26 percent, or 35 out of 134 sovereigns and which  possess a negative outlook as of Monday, the ratings agency said in a note.
 
It said that only 12 sovereigns currently have a positive outlook.
 
“Since the start of 2016, a third of rated sovereigns have experienced a decline in their economic strength, and two-fifths in their fiscal strength," it said.
 
"The sources of shock varied, but for many emerging markets it arose from the oil/commodities price shock, with the impact concentrated among commodities exporters in the Gulf, Sub-Saharan Africa and Central Asia," said the Moody’s note.
 
The outlook was said to be under pressure due to limited prospects for growth which were set to continue.
 
"One of the key credit constraints for most rated sovereigns is the persistently low growth environment," said Alastair Wilson, Moody's managing director for sovereign risk, in a statement on Monday.

"Monetary policy's ability to support growth in advanced economies is diminishing, and in many emerging markets it is constrained by above-target inflation and exchange-rate pressures. So we are seeing a gradual but broad-based shift in policy towards loosening fiscal policy in order to lift growth," Wilson said.
 
And amid those expansionary fiscal policies, high public-sector debt loads would rise further, Moody's expects.
 
"While higher public investment in infrastructure could stimulate demand over the near term and raise longer-term potential growth, very few sovereigns can afford to take on more debt without incurring some loss of credit strength," the Moody's report said.
 
Any countries' ability to develop and implement new policies, at the same time will be hurt by the domestic and regional political tensions, the ratings agency expected.
 
As is almost commonly known, uncertainty over how the U.S. election outcome might affect the Aaa-rated U.S. fiscal strength over the medium term as well as potential changes to its trade and security policies, was among the risks, Moody's cited.
 
Citing concerns over the risks of further fragmentation in the European Union after the U.K. voted to leave the bloc, other regions faced issues as well, Moody's noted.
 
Possibility that capital could flow out of their countries is also faced by emerging economies and countries, noted Moody’s.
 
"This is particularly relevant for countries with a high dependence on foreign capital inflows amid weakening currencies and elevated socio-political pressures. Some countries, including commodity exporters in Sub-Saharan Africa, already face significant liquidity pressures," it said.
 
(Source:www,cnbc.com) 






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