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.

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Growth
Financial
Stability
Political &
Geopolitical Risk
Technology
& Innovation
Climate Change
& Sustainability
Demographics
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Highlights
Cross-sector
/
5
April
2018
Rising uncertainty will magnify credit effects of weaker US-China trade relations
The rising uncertainty and political risk accompanying tit-for-tat tariff announcements will have economic and financial effects beyond those transmitted through direct trade channels. Further escalation in trade tensions will likely weigh on business investment and stoke market volatility.
Highlights
CROSS-SECTOR
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26
March
2018
UK’s post-Brexit transition deal is credit positive, but uncertainties remain
The transition arrangement that will come into effect after the UK’s formal withdrawal from the EU on 29 March 2019 allows the country to retain full access to the EU internal market until the end of 2020 and buys time for the negotiation of a new trade agreement and regulatory regime with the EU.
Highlights
Cross-Sector
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27
February
2018
Global economic growth will hit a high-water mark in 2018
We raised our global growth forecasts for 2018 and 2019, incorporating stronger-than-expected economic data and a likely pickup from additional US fiscal stimulus. Growth will peak in 2018 and moderate slightly in 2019 as gently rising inflation prompts tighter monetary policy.
Growth
SOVEREIGN AND SUPRANATIONAL
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16
March
2018
China's 2018 fiscal impulse will be larger than its deficit target

China's 2018 budget shows that the government will maintain a sizeable fiscal impulse (or stimulus) of 4.4% of GDP, supporting GDP growth while also driving a gradual rise in government debt. For the first time since 2012, the government has lowered its deficit target to 2.6% of GDP (vs. 2.9% in 2017), reflecting solid growth.

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SOVEREIGN AND SUPRANATIONAL
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15
March
2018
UK’s Spring Statement confirms slowing economy amid improved public finances

The UK’s economic and fiscal results for 2017 are slightly stronger than we expected, but the government’s stated aim to reduce its high public debt – which currently stands at above 85% of GDP – remains a key challenge.

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Cross-Sector
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14
March
2018
NAFTA exit would weigh on certain states and provinces

A US withdrawal from NAFTA would hurt certain states and provinces more than the national economies of the US and Canada.

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Financial Stability
SOVEREIGN AND SUPRANATIONAL
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27
March
2018
Higher US defense spending contributes to adverse fiscal dynamics

The recently passed Bipartisan Budget Act of 2018 will increase US defense spending, exerting additional negative pressure on the federal government's fiscal metrics.

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SOVEREIGN AND SUPRANATIONAL
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28
February
2018
US tax law to have marginal impact on low-tax sovereigns

The new US tax law will make cross-border tax reduction strategies less effective and reduce the flow of US foreign direct investment to low-tax countries. However, US multinationals are likely to maintain their activities in such jurisdictions due to favourable regulatory regimes and other benefits.

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Political & Geopolitical Risk
SOVEREIGN AND SUPRANATIONAL
/
20
March
2018
Russia’s economic policies will shape its sovereign credit profile during Putin's final term

As Vladimir Putin begins his fourth six-year term as Russia’s president, the government’s economic policy priorities – especially the new focus on growth – will inform Russia’s future creditworthiness. However, ongoing sanctions against Russia will likely constrain the government’s policy options.

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SOVEREIGN AND SUPRANATIONAL
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6
March
2018
Germany's new coalition policies are credit negative overall

The policies of Germany's new coalition will maintain the previous government's limited reform momentum, and is likely to result in Germany's demographic trends slowing down economic growth to below 1% by mid-2020, from around 1.5% currently.

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SOVEREIGN AND SUPRANATIONAL
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6
March
2018
Italy's difficulty in forming a government adds to structural, economic, fiscal challenges

Italy has high public debt levels, and its economic growth and international competitiveness lag behind other euro area countries. The economic and fiscal policy direction of the country's next government will therefore be key for Italy's credit profile.

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Technology & Innovation
Financial Institutions
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16
April
2018
Blockchain has the potential to streamline banks' transactions but reduce fee income

Blockchain's potential effects include making cross-border transactions faster and less expensive, a credit positive for banks, and compressing banks' fees and commissions, a credit negative.

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Cross-Sector
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12
April
2018
US housing, housing finance industries set to gain from adoption of new technologies

These industries are increasingly adopting new technologies in response to growing demand from customers.

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Corporates
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9
April
2018
Push for alternative-fuel vehicles poses challenges for key Japanese sectors

Alternative-fuel vehicles will require significant upfront investments from Japanese automakers and associated industries.

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Climate Change & Sustainability
Corporates
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18
April
2018
Global Passenger Airlines: Pricing power, route mix to determine credit implications of carbon transition

Route mix and pricing power will be the most important factors in determining the credit impact of carbon transition costs on passenger airlines.

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Infrastructure and Project Finance
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29
March
2018
Offshore wind is ready for prime time

The US offshore wind market is poised to take off in the wake of sharply declining costs and growing policy support.

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Corporates
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20
March
2018
Carbon transition raises risk for steelmakers but effects will vary widely

The energy-intensive steelmaking industry will face increasing stress as efforts to curtail greenhouse gas emissions gain momentum.

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Demographics
Cross-sector
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10
April
2018
Japan’s aging population poses credit challenges

An aging and shrinking population will lead to limited prospects for real GDP growth, declining household savings rates, a narrowing tax base and rising welfare spending.

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CROSS-SECTOR
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6
March
2018
Rising income inequality related to weaker sovereign institutional strength

Rising income inequality can have negative implications for sovereign credit quality by encouraging corruption or law-breaking and weakening government institutions.

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SOVEREIGN AND SUPRANATIONAL
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23
February
2018
Higher female labour force participation supports sovereign credit profiles

In several advanced economies, government measures to promote higher female labour force participation will, if successful, support economic growth and government balance sheets, thereby supporting sovereign creditworthiness, especially in Japan (A1 stable) and Korea (Aa2 stable).

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