​Risk of downturn to hit credit: Moody’s

Growing risks of a global economic downturn and trade policy uncertainty will lead to weaker credit conditions in 2020, according to rating agency Moody’s.

The agency has released its latest report, highlighting fears of rising political stability and a “fragile” global economy, heading into 2020.

This year, the global economy is on track to record the lowest level of growth since 2009, Moody’s said. 

A “deceleration” in the US and China will lead to slower growth overall, according to Moody’s Associate Managing Director Elena Duggar. 

“Growth in advanced economies will slow toward potential as labor markets continue to tighten, while growth in many emerging market countries will be below average as a result of China’s slowdown and as global trade growth grinds to a halt,” Duggar said. 

Trade tensions fuelled by protectionist sentiment across the world are likely to affect credit conditions next year, Moody’s said. 

“Risks will center around US-China trade disputes, Brexit-related uncertainty and the escalation of other bilateral disputes. At the sector level, spillover effects from trade frictions will drive shifts in global supply chains and weigh on investment decisions,” the report said. 

Moody’s does not expect a global recession in 2020, but says recession risks are “building” due to trade policy uncertainty, an “unpredictable” geopolitical environment, and as fiscal and monetary space remains “limited”.

Other risks to the global economy, according to Moody’s, including “high leverage and the historically high number of debt issuers with weak credit quality accessing the credit markets”. Recession risks will remain “elevated” in Europe, while China’s domestic rebalancing will also create challenges for the global economy. 

Overall, the ratings agency expects interest rates to remain low and yield curves to remain flat. Low rates will be good for borrowers but will create “a difficult operating environment for banks and insurers”.