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Key themes shaping global credit markets

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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
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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.
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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

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Recession risks
Lower-for-longer interest rates
Political risks
Trade tensions
Disruptive technologies
ESG impact
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Risks to global economy mount amid virus resurgence
A second wave of coronavirus infections is threatening the fragile economic recovery among G-20 nations, and high frequency alternative data point to an uneven and inconsistent rebound in trade.
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Cross-sector
Credit risks rise for speculative-grade emerging market sovereigns and corporations
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Lower-for-longer interest rates

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16
Oct
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Banking
Low for longer rates will intensify pressure on Spanish banks' margins
Spanish banks' margins will be challenged as a result of the low for longer rates, the weak operating environment and the continued competition in the market.
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24
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US Public Finance
Public Finance – US: Low interest rates create pension and investment challenges but lower debt costs
Interest rates will remain low well after the coronavirus crisis subsides, presenting US public finance issuers with a mix of pension challenges and low-cost debt opportunities.
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4
Nov
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Cross-sector
US presidential election outcome uncertainty is unlikely to have significant credit effects
Our assumption is that US institutions will resolve vote count delays and any subsequent disputes over the results in a manner consistent with established frameworks around the rule of law.
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8
Oct
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Cross-sector
Podcast: US presidential election will shape policies on economy, healthcare and the environment
Atsi Sheth and Robard Williams from the Credit Strategy & Research team discuss the credit effects of key policy challenges that will confront the next US presidential administration, and the uncertainties surrounding the election.
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27
Oct
2020
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US Public Finance
Public Finance – US: Infrastructure, governments and hospitals face varying impacts from shifts in trade
The coronavirus crisis is likely to accelerate international trade fragmentation, disrupting supply chains and upending the decades-long trend toward globalization.
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26
Oct
2020
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Cross-sector
Prolonged dollar weakness would have limited credit effects on Asia ex-Japan issuers
Further weakening of the US dollar would likely have only a small positive effect on Asia (ex-Japan) economies as global economic growth remains subdued.
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6
Oct
2020
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Corporates
Pandemic accelerates digital transformation, benefitting many US tech subsectors
Raj Joshi and Rick Lane of the Corporates team discuss how the coronavirus pandemic is accelerating the adoption of technology by businesses and consumers. As global macroeconomic conditions improve, these shifts will be credit positive.
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10
Sep
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Corporates
Corporate reputational risks rise as cyberattacks are more publicized
Awareness of cyberattacks is increasing reputational risks for companies globally as cybercriminals publicly identify their attack targets and disclosure requirements around cyber events become more stringent.
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30
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US Public Finance
COVID-19 increases ESG challenges for US public finance issuers
The pandemic leaves municipalities with competing funding priorities and challenges.
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28
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Cross-sector
Healthcare Quarterly: October
In this edition of the Healthcare Quarterly, we look at how the coronavirus will accelerate and compound changes that are already in progress long after the pandemic actually ends.
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US Public Finance
COVID-19 increases ESG challenges for US public finance issuers
The pandemic leaves municipalities with competing funding priorities and challenges.
view reportHEAR PODCASTVIEW INFOGRAPHIC
27
Oct
2020
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US Public Finance
Public Finance – US: Infrastructure, governments and hospitals face varying impacts from shifts in trade
The coronavirus crisis is likely to accelerate international trade fragmentation, disrupting supply chains and upending the decades-long trend toward globalization.
view reportHEAR PODCASTVIEW INFOGRAPHIC
24
Sep
2020
/
US Public Finance
Public Finance – US: Low interest rates create pension and investment challenges but lower debt costs
Interest rates will remain low well after the coronavirus crisis subsides, presenting US public finance issuers with a mix of pension challenges and low-cost debt opportunities.
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