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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

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
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17 MARCH
2020
Credit Conditions – Global Coronavirus and oil price shocks: managing ratings in turbulent times

We have taken some rating actions already in the most affected sectors and expect to take more in the coming weeks.
Corporate defaults are likely to climb as the coronavirus outbreak continues and oil prices remain low. Under a scenario of a sharp-but-short economic downturn, we project the trailing 12-month global speculative-grade default rate will
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.
Research Highlight
Corporates
/
27
March
2020
Default rates poised to rise as coronavirus-induced economic turmoil intensifies
Corporate defaults are likely to climb as the coronavirus outbreak continues and oil prices remain low. Under a scenario of a sharp-but-short economic downturn, we project the trailing 12-month global speculative-grade default rate will
29
May
2020
/
Corporates
Podcast: Lower recoveries likely on US corporate defaults during coronavirus pandemic
David Keisman and Julia Chursin discuss why US corporate defaults during the pandemic are likely to produce bigger losses for investors.
28
May
2020
/
Cross-sector
More signs emerge of an economic turning point
High frequency and alternative data indicators in May indicate the economic shock from the coronavirus pandemic will be concentrated in the second quarter, in line with our expectations.
22
May
2020
/
Cross-sector
Coronavirus – India: Lockdown compounds economic challenges as credit risks rise in many sectors
The economic damage will likely be extensive, with wide-ranging effects on both the public and private sectors.
19
May
2020
/
Financial Institutions
The coronavirus experience will likely change habits and reshape business models
We identify three main areas where we expect the pandemic to have enduring impact on financial services.
4
May
2020
/
Banking
Coronavirus shock likely to reduce some banks' capital, increase credit vulnerabilities
As the economic shock broadens and lengthens, it will begin to take a toll on some banks' capital, driving an increase in the number of negative actions on individual issuers.
Turn outlooks into insights
24 Cities  /  8 Weeks
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3
Apr
2020
/
Sovereign & Supranational
Government of Hungary: New emergency law raises concerns about rule of law and will intensify tensions with EU
The new emergency law is the latest measure in a series of policy actions that have weakened checks and balances and limited the freedom of the media.
5
Mar
2020
/
Sovereign & Supranational
Government of Israel: Third consecutive inconclusive election will prolong policy inertia
Assuming that a government is formed, the 2020 budget will be the first important indication of the new government's fiscal strategy and capacity to address Israel’s fiscal deterioration.
18
May
2020
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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
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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.
18
Mar
2020
/
Cross-sector
Cyber risks will rise as attackers seek to capitalize on coronavirus fears
Coronavirus-themed phishing attempts and malware attacks will likely increase, while some issuers will more closely scrutinize their cybersecurity budgets in response to unexpected financial pressures.
27
Feb
2020
/
Structured Finance
Podcast: Securitization technologies often improve underwriting but also heighten risk
Jody Shenn and Pedro Sancholuz Ruda from the Structured Finance team discuss how technologies like alternative data, machine learning, blockchains and document digitization can help to improve the accuracy and efficiency of asset origination or under
25
May
2020
/
Corporates
Heat map update: More companies have high exposure to coronavirus disruptions
About 22% of rated companies have high exposure, up from 20% on 31 March. The effects of disruptions on companies’ credit quality is becoming more apparent. About 39% have moderate exposure.
22
May
2020
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Sovereign & Supranational
World Bank's emergency funding for East Africa points to risks from intensifying locust swarms
The package provides funding for governments already challenged by the coronavirus pandemic and locust swarms, but the aid is modest relative to the magnitude of those twin shocks.
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