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Central Banks' Caution Bolsters Borrowing Conditions

Apr. 01 2019 — With central banks around the world taking a sudden, more-dovish stance toward monetary-policy normalization, benchmark borrowing costs are lower, credit spreads are tighter since the beginning of the year, and credit conditions have improved somewhat.

Still, the more measured approach by policymakers—particularly those at the U.S. Federal Reserve—may suggest that underlying economic conditions aren't strong enough to handle any tightening of monetary policy without sustaining some damage. Moreover, S&P Global Ratings doesn't believe that central banks' renewed caution fundamentally resolves the risks of a synchronous economic slowdown in the major economies of the U.S., Europe, and China—and worsening borrower credit quality as earnings growth tapers off.

In this light, our top global risks include the buildup in nonfinancial corporate debt and leveraged lending in the U.S. and elsewhere, which could weigh on funding liquidity and erode debt affordability; the potential for supply-chain disruption because of trade disputes; and emerging market vulnerabilities (see table 1). (For an infographic detailing our top global risks, please see "Credit Outlook March 2019: Top Global Risks.")

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