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.
Our positive outlook for French regional and local governments (RLGs) in 2019 is supported by solid economic growth, stable debt and the 1.2% limit on RLGs’ nominal spending increases. We expect France's national GDP growth to reach 1.6% next year, which will provide additional revenue for RLGs.
The lack of a coherent plan for structural reforms will negatively affect Italy's medium-term growth prospects and the credit quality of domestic issuers
Further flattening of the yield curve portends a possible setback for recent improvement in some US regional banks’ net interest margin, a credit negative because net interest income accounts for about 60% of these banks’ net revenue. But banks have some defenses, foremost their large base of very low-cost deposits that will help avert rising funding costs.
China recently launched measures to ease liquidity pressure in the onshore credit market, but weak issuers are still vulnerable to default.
Overall leverage is moderate in LatAm compared to other regions, which supports the economies' resilience to shocks. Exceptions include Argentina, Barbados, Belize and Jamaica.
US residential mortgage origination quality remains much stronger than it was in the mid-2000s, but over the past three years origination quality has weakened somewhat.
Jair Bolsonaro’s election as Brazil's president will improve investor sentiment, bolstering the real and business confidence, but the exact direction of his economic policy remains unproven
The intermittent political tensions linked to Catalunya’s unilateral declaration of independence from Spain in October 2017 have had only limited impact on the region’s economic performance. Catalunya remains Spain’s largest regional economy, contributing 19% of national GDP, but has the highest level of debt among the Spanish regions we rate.
The November 6 midterm elections will determine control of the US Congress; however, the outcome is unlikely to fundamentally alter the direction of US policy. Instead, President Donald Trump's administration will likely continue to drive the agenda, particularly in the areas of trade, healthcare and immigration.
The development of autonomous vehicles will increasingly rely on joint ventures and cooperation agreements within the auto industry, such as Honda’s deal with GM, to overcome significant technology integration and capital requirements.
Brazil’s fintech firms are taking advantage of a large population, low levels of financial inclusion and a smartphone-friendly generation to offer low or even no-cost products and services. The companies still have a tiny market share, however, and many will likely fail or be bought by big banks, which are aggressively rolling out their own digital innovations.
China's push for new energy vehicles will compress automakers' profitability but have limited effect on other sectors largely because their exposure to the auto sector is low.
Property damage from the Category 4 hurricane will impact fourth-quarter earnings for insurers.
Climate challenges facing Australia’s states and territories range from very high and rising temperatures, to droughts and bush fires, and increasingly severe storms and cyclones. The impact on economic growth through lost revenue and greater spending on health and infrastructure is mitigated by the diversity of the states’ economic bases and their robust institutional framework.
The typhoon that swept through Japan in early October caused extensive damage to transport networks and power supply within Shizuoka Prefecture and Hamamatsu City. While the adverse impact on economic activity is credit negative, we expect the central government's disaster recovery funding scheme to help alleviate the financial burden facing affected regional and local governments.
The credit effects of Spain's ageing population will be uneven in the period to 2035. Although the overall population is likely to remain steady, its age structure will alter significantly.
US demographics are changing rapidly in some parts of the country. Growth, size and makeup of the populations served by public finance sectors will drive revenue and expense trajectories.
Rising demand for healthcare will challenge governments' expenditure targets, and spur a focus on value-for-money in spending.