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.
The trade dispute between the United States and China is only the latest development that threatens to slow growth in agriculture-dependent states.
The trade dispute between the US and China and other countries will be prolonged and have a negative impact on global growth. However, the countries involved will likely stop short of full implementation of the most severe potential measures, including tariffs on all US auto imports or a breakdown of NAFTA.
US tariffs on auto parts would be credit negative for the sector with original equipment manufacturers likely to recoup a portion of the cost through contract negotiations
Nominal fiscal positions across the euro area are improving. However, structural fiscal balances in the EU as a whole are deteriorating, illustrating the challenges national authorities face in ensuring compliance with the common fiscal framework, which is especially important for euro area countries.
The government’s efforts to create a local market for Islamic finance instruments are supporting the sovereign's credit quality by adding stability and diversity to its borrowing profile.
Global equity prices have rebounded from the turmoil in the spring but show signs of being weighed down by news on trade, while government bond prices have declined from high levels amid expectations of higher interest rates in the US and in other economies. Systemic financial risks have increased, reflecting reduced liquidity in the US.
The economic impact of the ongoing boycott of Qatar by neighboring Gulf countries and Egypt remains modest. Qatar's credit quality continues to receive support from the large net asset position of the government, high per capita income, large hydrocarbon reserves and low breakeven oil prices.
The tariffs on US soybeans, if kept in place for an extended period of time, are likely to erode US farmers’ net income and reduce equipment residual values, credit negatives for US asset-backed securities backed by loans or leases secured by agricultural equipment. However, several mitigants should limit the effect on the ABS, and cumulative net loss rates in the securitizations will likely remain within our expectations.
Data-sharing partnerships between big technology-enabled firms and large US banks would increase competition for customer relationships for midsize and smaller US regional banks.
Based on recent fund flow data, outflows of dollars invested in US active equity mutual funds have accelerated and are at their highest rate year-to-date.
Innovation will be credit positive for banks if implemented prudently with adequate safeguards and testing. Increased competition is also positive, but a threat to banks unable to keep up. A new OCC fintech charter is credit negative for incumbent banks but positive for fintechs awarded a charter.
Despite continued reductions in power sector emissions, the slow pace of decarbonisation in other sectors could drive carbon markets tightening
We estimate insured losses are up to $1.5 billion and will likely increase as the fire continues to burn, which likely portends heavy wildfire losses for the remainder of 2018.
Global green bond issuance rebounded in Q2 2018 to $44.9 billion from $31.9 billion in Q1. While we expect green bond issuance to pick up in the second half of 2018, we have trimmed our full-year expectations to $175-200 billion, down from our January forecast of $250 billion.
Britain will continue to reduce CO2 emissions rapidly and power prices are likely to fall.
European sovereigns will face increasing fiscal challenges to meet the publicly funded share of healthcare spending as their populations age. As a result, moderating per capita costs will be key to maintaining access to efficient and affordable care.
Slow-to-recover labor markets, shrinking populations accelerated by urban migration and an aging workforce pose financial hurdles that most rural local governments will increasingly confront. Prudent fiscal management and financial flexibility will be critical in maintaining credit quality.
Population growth has boosted the City of Moscow’s personal tax receipts. However, the Oblast of Moscow, where most of the workers have settled, will face welfare spending pressures, limiting the Oblast’s ability to spend more on infrastructure.