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Key themes shaping global credit markets

Find out how political risks, ESG and other themes will affect market segments including banking, corporates and insurance.
2020 CREDIT THEMES
Access Moody’s industry-leading analysis across topics such as recession risks, trade tensions and disruptive technologies.
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Risks to credit conditions rise as the global slowdown takes hold

Credit Conditions – Global Coronavirus and oil price shocks: managing ratings in turbulent times

17 MARCH
2020
Given sharply lower global growth expectations and acute market volatility, we have taken some rating actions already in the most affected sectors and expect to take more in the coming weeks. These actions reflect the breadth and severity of the shock, and the broad deterioration in credit quality that it has triggered.

Six Themes Shaping Global Credit in 2020

Coronavirus will have a profound impact on credit conditions

Recession Risks
Lower-for-longer Interest Rates
Political Risks
Trade Tensions
Disruptive Technologies
ESG Impact
Recession Risks
The coronavirus will cause unprecedented shock to the global economy
  • The G-20 economies will experience an unprecedented shock in the first half of this year and will contract in 2020 as a whole, before growth picks up in 2021
  • The widening coronavirus outbreak, the deteriorating global economic outlook and asset price declines will create a severe and extensive credit shock across many sectors, regions and markets
  • Oil prices will remain low and volatile, and will contribute to credit stress for oil producers and exporters
Lower-for-longer Interest Rates
Global central banks are stepping up to avert permanent damage to households and businesses
  • Interest rates will remain near zero as global central banks maintain supportive monetary and liquidity policies
  • Coronavirus crisis-response programs will mitigate risks to financial institutions in the short term but could weaken asset quality in the future
  • Issuers with weak liquidity are vulnerable to sudden stops of capital. Many emerging market sovereigns will face significant rollover risk
Political Risks
Governments are reacting quickly to try to contain the damage from the coronavirus, but the pandemic will test the multilateral system
  • Fiscal and monetary authorities will step up the level of support to the economy to avert permanent damage to households and businesses resulting from the coronavirus
  • The pandemic will test the ability and institutional capacity of some governments to respond and coordinate across local, state and national authorities
  • The crisis puts a spotlight on the global multilateral system’s ability to manage fast-moving, complex and interlinked issues across health, transportation, education and business
Trade Tensions
Significant supply chain disruptions will weigh on global trade, on top of existing trade disputes
  • Significant supply chain disruptions spurred by the coronavirus outbreak and weak external demand will weigh on global trade
  • Coronavirus effects and trade tensions will result in further shifts in investment and supply chains, and will challenge the low-inventory business models of trade-reliant economies and companies
  • Bilateral and multilateral trade negotiations will remain ongoing across the globe
Disruptive Technologies
Stay-at-home orders are having a profound impact on the telecom and consumer technology industries, which will transform how we work
  • Adoption of remote telecommunication in the workplace will accelerate, together with deeper e-commerce penetration in traditionally brick-and-mortar industries, such as food retail
  • Growing demand for remote interactions is highlighting the importance of 5G technology, potentially accelerating adoption in the long term
  • A global race for a coronavirus vaccine is underway
  • Corporate management and policymakers will intensify their focus on cyber risk
ESG Impact
As a social risk, the coronavirus will have substantial credit implications for public health and safety
  • As a social risk, the coronavirus outbreak will have substantial credit implications for public health and safety and will further drive the debate about income inequality
  • Investors will seek enhanced disclosure from companies about environmental exposures and risk mitigation
  • Deeper market integration of climate risks will constrain the availability of capital for the most-exposed sectors
  • Natural capital concerns, such as water scarcity, deforestation and food insecurity, will put the spotlight on efficient resource management

Featured Research

Recession risks
Lower-for-longer interest rates
Political risks
Trade tensions
Disruptive technologies
ESG impact
Research Highlight
Cross-sector
/
18
June
2020
Coronavirus will shape and accelerate global economic, business and consumption trends
The crisis will likely result in fundamental shifts for economies, societies and companies in the coming years.
Research Highlight
Cross-sector
/
24
April
2020
Video: Coronavirus will reshape credit conditions
Colin Ellis of the Credit Strategy & Research team discusses how the coronavirus crisis intersects with the six major credit themes we identified for 2020: recession risks, lower-for-longer interest rates, political risks, trade tensions, disruptive
Research Highlight
Sovereign & Supranational
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15
April
2020
IMF’s coronavirus debt-relief plan will benefit low-income countries, but raises prospect of defaults
The IMF and the World Bank are leading an initiative to provide $500 million in financial support to the world’s poorest countries to address the impact of the global coronavirus outbreak.
30
Jun
2020
/
Cross-sector
Strains on US small and midsize businesses are credit negative across sectors
The hardships of small and midsize businesses in the coronavirus-triggered recession will weigh on financial institutions, companies with a small business customer base, and certain structured finance transactions.
25
Jun
2020
/
Cross-sector
Higher-income Europeans built up cash during lockdowns, but sentiment remains weak
Our new COVID Recovery Monitor, Europe, shows that consumers in the region’s five largest economies are emerging from lockdowns with spare cash, concentrated among people with higher incomes.
18
Jun
2020
/
Cross-sector
Coronavirus will shape and accelerate global economic, business and consumption trends
The crisis will likely result in fundamental shifts for economies, societies and companies in the coming years.
10
Jun
2020
/
Banking
Podcast: Five factors shape the impact of low rates and flat yield curves on bank margins
Sean Marion and Louise Lundberg of the Financial Institutions team discuss the five key factors that make banks more or less vulnerable to persistently low interest rates and flattening yield curves.
Turn outlooks into insights
24 Cities  /  8 Weeks
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15
Jun
2020
/
Sovereign & Supranational
Government of Hong Kong: Further constraints on autonomy of institutions underpin credit linkage with China
Hong Kong's autonomy is gradually more constrained and the rating will continue to reflect the close linkages with China.
15
Jun
2020
/
Cross-sector
Brexit – Europe: Failure to extend negotiation period increases risk of no UK-EU trade agreement
With an extension of the transition period off the table, risks are rising that no agreement will be reached. Such an outcome, a so-called no-deal Brexit, would be a clear credit negative for debt issuers in both the UK and the EU.
18
May
2020
/
Cross-sector
Global trade will contract sharply this year
The coronavirus crisis is depressing consumer demand, disrupting global supply chains and spurring export restrictions on medical and food supplies. In addition, the pandemic will complicate and possibly delay US-China “phase two” trade negotiations.
20
Feb
2020
/
Trade disputes pose threats to China's tech sector development
China-US trade relations remain strained despite the recent phase-one trade agreement, with potential long-lasting ramifications for China’s high- and mid-end technology sectors.
17
Jun
2020
/
Banking
Banking – Europe: Lockdowns drive surge in the use of digital banking channels and remote working
Lockdowns imposed to contain the spread of the coronavirus have led to a surge in the use of digital banking channels, accelerating banks' digital transformation.
8
Jun
2020
/
Corporates
Podcast: Effects of cyberattacks against suppliers and vendors on corporate credit quality
Vincent Gusdorf of the Corporates team and Leroy Terrelonge from the Cyber Risk team discuss why cyberattacks against third parties will increase and which industries are the most vulnerable.
10
Jun
2020
/
Corporates
Gaming — Global: Problem gambling and crime prevention drive high social credit risk but impact varies
Increasing societal pressure to curb problem gambling and prevent crime will trigger more regulation, but the credit impact on gaming companies will vary.
4
Jun
2020
/
US Public Finance
Public finance – US: Social unrest and underlying inequality pose fiscal and governance credit risks
The widespread unrest in cities illustrates long-standing social risks for public finance credits and comes as states and local governments face fiscal hurdles from the coronavirus.
4
Jun
2020
/
US Public Finance
Public finance – US: Social unrest and underlying inequality pose fiscal and governance credit risks
The widespread unrest in cities illustrates long-standing social risks for public finance credits and comes as states and local governments face fiscal hurdles from the coronavirus.
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