Global Credit Outlook 2021: COVID-19 Will Trigger More Downgrades, Report Says

Rhea-AI Summary

The COVID-19 pandemic will heavily impact global credit conditions in 2021, according to S&P Global Ratings. Despite vaccine optimism, economic recovery will vary worldwide, with a forecasted global GDP growth of 5.0%, down from previous estimates. The U.S. and Europe will see 4.2% and 4.8% growth, respectively, while emerging markets face financial challenges. Credit downgrades are anticipated, with a 36% negative bias among rated entities. Defaults may rise, with speculative-grade default rates expected to hit 9% in the U.S. and 8% in Europe by September 2021.

Positive

• Global GDP growth is forecasted at 5.0% for 2021.
• China's GDP is expected to grow by 7.0% as downside risks ease.
• U.S. and Eurozone GDP growth projected at 4.2% and 4.8% respectively.

Negative

• Credit downgrades expected with a 36% negative bias among rated entities.
• Speculative-grade default rates projected to rise to 9% in the U.S. and 8% in Europe by September 2021.
• Economic recovery is uneven, potentially leading to further credit deterioration, especially in hard-hit sectors.

LONDON, Dec. 3, 2020 /PRNewswire/ -- (S&P Global Ratings) The COVID-19 pandemic will continue to put a heavy strain on global credit conditions in 2021, despite positive news on a vaccine, says S&P Global Ratings today in its "Global Credit Outlook 2021: Back On Track?" published on RatingsDirect and on our website.

"Even if a vaccine becomes widely available by midyear, which we assume in our baseline, the containment of the pandemic will be very uneven worldwide," said Alexandra Dimitrijevic, Global Head of Research at S&P Global Ratings.

"Until then, the main risk for the first half of 2021 is that further waves of COVID-19 cases, requiring renewed containment measures, may harm a fragile economic recovery and lead to further credit deterioration, particularly in sectors most exposed to social distancing and travel restrictions."

Our key forecasts for 2021 include:

• With economic momentum fading as COVID cases surge again, we are forecasting a weaker start to 2021, although our 2022-2023 GDP forecast is broadly unchanged. We expect full-year global GDP growth at 5.0%, down 30 basis points from our previous forecasts. For China--first into the crisis and first out--we see GDP expanding by 7.0% next year as acute downside risks ease and some upside emerges. The U.S. and Europe are mired in a second wave of COVID-19, but extensive vaccine purchases lined up by their governments support prospects of a turnaround in the second quarter. We forecast 4.2% GDP growth in the U.S. and 4.8% for the eurozone in 2021. For emerging markets, financial pressures may hamper the pace of recovery.
• After peaking at 265% of global GDP at the end of 2020, global leverage is likely to ease only slightly in 2021, and mostly as a result of a rebound in global GDP. With vaccine availability and a rebound in the global economy, the focus in the second half of 2021 will likely turn to the gradual unwinding of extraordinary fiscal support, revealing the extent of credit losses for banks. Governments, meanwhile, face the difficult task of balancing the near-term risks of premature austerity with a medium-term need to put debt on a declining path.
• Our rated corporates and governments have a 36% negative bias, pointing to more downgrade potential in 2021. However, our base-case economic and credit assumptions do not suggest a large second wave of changes akin to that necessary in the post-March adjustment to the COVID shock. Instead, changes will reflect the widening outlook gaps between and within sectors and regions. Those hit hard by COVID--such as leisure, transportation, and retail--will only recover by 2022 or later; those least affected should be back on track next year.
• Defaults will continue to rise. Even though we expect central banks to preserve very low funding costs through 2021, higher leverage and a large share of vulnerable corporates are likely to induce further defaults, resulting in the 12-month speculative-grade default rate rising to around 9% in the U.S. and 8% in Europe by September 2021, versus 6.3% and 4.3% in September 2020.
• The pandemic is putting ESG factors in the spotlight. 2021 will see greater focus on achieving an environmentally sustainable recovery and addressing the social inequalities magnified by COVID-19. Unprecedented fiscal support cushioned the social impact of COVID-19. As this wears off, the question of equitable burden-sharing could determine political agendas in 2021.

The report also provides to 20 Questions That Matter, collected through our interactions with investors and other market participants. These are also available on our website here.

The report is available to subscribers of RatingsDirect at www.capitaliq.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@spglobal.com. Ratings information can also be found on S&P Global Ratings' public website by using the Ratings search box located in the left column at www.standardandpoors.com. Alternatively, call one of the following S&P Global Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4009.

This report does not constitute a rating action.

Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

STANDARD & POOR'S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor's Financial Services LLC.

View original content:http://www.prnewswire.com/news-releases/global-credit-outlook-2021-covid-19-will-trigger-more-downgrades-report-says-301186214.html

SOURCE S&P Global Ratings

FAQ

What does the S&P Global Ratings report say about COVID-19's impact on credit conditions in 2021?

The report states that COVID-19 will continue to strain global credit conditions, with a forecasted global GDP growth of 5.0%.

What is the projected default rate for speculative-grade companies according to S&P Global Ratings?

S&P projects the speculative-grade default rate to rise to 9% in the U.S. and 8% in Europe by September 2021.

How is GDP growth expected to change in 2021 according to S&P Global Ratings?

S&P forecasts global GDP growth at 5.0%, with specific growth rates of 4.2% for the U.S. and 4.8% for the Eurozone.

What sectors are expected to recover later from COVID-19 according to the report?

Sectors such as leisure, transportation, and retail are expected to recover by 2022 or later.