The Big Picture
2018 Global Credit Themes

The Big Picture presents research on six themes shaping credit in 2018: Growth, Financial Stability, Political & Geopolitical Risk, Technology & Innovation, Climate Change & Sustainability, and Demographics.

Explore our Credit Themes
Growth
Financial
Stability
Political &
Geopolitical Risk
Technology
& Innovation
Climate Change
& Sustainability
Demographics
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Highlights
CROSS-SECTOR
/
30
May
2018
Global economic outlook remains strong, but downside rises to the surface
Global growth will be robust in 2018 but will likely moderate by the end of 2018 and in 2019 as several advanced economies reach full employment and as borrowing costs rise and credit conditions tighten.
Highlights
Cross-sector
/
25
May
2018
Fiscal weakening and reversal of reforms in Italy would strain credit quality of domestic issuers
The risks of fiscal weakening and the reversal of reform efforts in Italy not only affect the creditworthiness of the sovereign but also the credit profiles of domestic issuers with strong ties to the government, including subsovereign entities, government-related issuers, financial institutions, corporates and structured finance transactions.
Highlights
SOVEREIGN AND SUPRANATIONAL
/
22
May
2018
US withdrawal from Iran deal increases geopolitical risk in the Middle East
The reimposition of sanctions on Iran would raise the risk of a more interventionist foreign policy from Iran in the Middle East region, which would likely exacerbate conflict hot spots in Syria, Yemen and Iraq. An increase in tensions would in turn drive up military spending across the region, and capital outflows in the case of Lebanon in particular.
Growth
SOVEREIGN AND SUPRANATIONAL
/
30
May
2018
Tax reforms most likely to be effective in developing APAC countries with strong tax administration

Measures to broaden the tax base will provide the most support to the credit profiles of regional sovereigns that are also pursuing deficit reduction, including measures to manage expenditure, and that benefit from strong underlying GDP growth.

Cross-Sector
/
25
May
2018
Property sector remains central to China’s economy

While the supply chain remains the most important transmission channel of the property market to the wider Chinese economy, the country’s financial and household sectors have increasing exposure to the property market.

Financial Institutions
/
17
May
2018
Slowdown in growth of US household debt is credit positive

A new report from the New York Federal Reserve Bank shows US household debt grew 3.8% in the first quarter from a year earlier, well below the rate of growth posted over the last three quarters of 2017 and only slightly higher than our 2.7% 2018 GDP forecast, a credit positive. The rate of new US household debt delinquencies was 4.54% in Q1, down slightly from a year earlier.

Financial Stability
CROSS-SECTOR
/
11
June
2018
Weak economic recovery in Puerto Rico weighs on issuers as new hurricane season looms

Puerto Rico enters the 2018 hurricane season still reeling from the destruction of Hurricanes Maria and Irma last year. The tenuous nature of the island’s economic recovery is credit negative for issuers based in Puerto Rico, with the severity varying by sector.

SOVEREIGN AND SUPRANATIONAL
/
4
June
2018
Changes to China's economic structure are gathering pace; a credit positive

China’s reforms seek to address overcapacity and elevated leverage, while aiming to shift economic activity towards higher value-added sectors. Resulting faster productivity growth would help to make debt levels more sustainable and support the government’s debt-carrying ability and credit quality.

SOVEREIGN AND SUPRANATIONAL
/
4
June
2018
LatAm sovereigns with large external imbalances have the biggest exposure to currency weakness

While most Latin American countries have been subject to currency depreciations over the last two months, Argentina is the most susceptible because of its large external funding needs and country-specific structural weaknesses.

Political & Geopolitical Risk
SOVEREIGN AND SUPRANATIONAL
/
1
June
2018
Turkey’s Ba2 rating on review for downgrade owing to rising external vulnerability, weakening currency

Our review will assess the extent to which the policies of Turkey’s post-election government will weaken or support domestic economic and financial stability, especially the country’s balance-of-payment position and ability to withstand shocks.

U.S. Public Finance
/
24
May
2018
Select US state and local governments have exposure to significant changes in trade policies

Potential escalation of US trade restrictions and their effects on companies, consumer prices and regional economies would affect the tax revenues of select state and local governments, and over the long term, their social spending and taxing capacity.

Corporates
/
15
May
2018
Proposals to lower US drug prices would be credit negative, if adopted

Proposals from the US Department of Health & Human Services to lower US prescription drug prices, if enacted, would pressure US drug prices, a credit negative for branded and generic drug companies. The credit impact would vary by company, generally depending on the portion of each company’s sales coming from the US market.

Technology & Innovation
Cross-Sector
/
17
May
2018
China remains focused on developing its tech sectors despite risk of US restrictions

China has significant financial and policy means to support its large state-owned companies as implementers of its high-tech vision. The Chinese government may increase direct and indirect financial support to technology sectors to mitigate the impact of any US actions on individual companies.

Corporates
/
3
May
2018
Agribusiness will benefit from rising food demand, with the help of new technology

Global population growth and rising incomes will drive increasing demand for food in coming decades. This will require agribusiness to increase agricultural output with the aid of new technologies from autonomous vehicles to biotech and blockchain.

Climate Change & Sustainability
Sub-Sovereign
/
12
June
2018
Environmental risks faced by Italian regional economies mitigated by central government support, but funding uncertain

Measures to prevent floods, landslides and coastal erosion will likely cost Italian regional and local governments (RLGs) around €26 billion. However, while central government support is credit positive for Italian RLGs, the funding for such measures is uncertain given the new central government’s focus on other priorities.

Infrastructure and Project Finance
/
11
June
2018
US coal and nuclear plant closures continue CO2 decline, but power market effect to be muted

Over the next five years, scheduled retirements of US coal-fired and nuclear power plants representing 35 gigawatts of generating capacity will continue the trend of declining CO2 emission. The impact on US power capacity will be limited, given the roughly 32 GW of new generation capacity, excluding renewable sources, that is now under construction.

Financial institutions
/
24
May
2018
European insurers are increasingly engaged as ESG risks, opportunities come into focus

Many European (re)insurers incorporate Environment, Social and Governance (ESG) issues into their business strategies. We expect their consideration of ESG matters to become increasingly sophisticated and comprehensive, particularly as factors such as population aging and climate change start to affect the sector in more tangible ways.

Demographics
Financial Institutions
/
11
June
2018
Long-term care risk remains a top credit issue for US insurers

The exposure of US insurers to older, legacy long-term care policies is a major credit risk for the life insurance industry. The degree of risk depends on a specific insurer’s overall concentration in long-term care, the original pricing and characteristics of the policies, and the insurer’s success in achieving rate increases for long-term care products.

Cross-sector
/
17
May
2018
How demographics will shape labor markets and credit trends

Demographic shifts will induce profound changes in economic growth trajectories and sector priorities.

Sovereigns
/
8
May
2018
Nordic immigration’s growth dividend offsets modest fiscal costs

Immigration to the Nordic countries will continue to have a positive impact on the size of the labor force and productivity, but a lower employment rate for some segments of the immigrant population will entail costs for the public finances.

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