Navigating Uncertainties with the Early Warning Signals (EWS) Framework – 2025 Insights

This blog is written and published by S&P Global Market Intelligence, a division independent from S&P Global Ratings. Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.

In 2025, the global economy faced escalating trade tensions and geopolitical uncertainty, challenging business confidence despite central banks’ rate cuts to support growth. According to S&P Global Ratings, global corporate default rates fell for a third consecutive year^[1], highlighting corporate resilience amid a volatile environment. Despite this resilience, early detection of heightened risk remains essential for navigating ongoing uncertainties and making timely, confident decisions.

S&P Global Market Intelligence’s EWS framework, powered by RiskGauge™ 3.0 model, provides timely warning signals for early detection of entities with genuine risk of defaulting, expressed in an intuitive, traffic light color scale^[2] This blog examines a test dataset covering the period from 1 January to 31 December 2025, illustrating the real-world effectiveness of the EWS framework.

The test dataset primarily comprises entities rated by S&P Global Ratings. Specifically, the defaulters sample includes corporations rated CC or lower, augmented with bankruptcy and default flags reported in S&P Capital IQ® Platform key developments.^[3],[4] The non-defaulter sample consists of corporations rated CCC- or higher. In total, the analysis contains 126 default observations and 2,611 distinct non‑defaulters.

As illustrated in Figure 1 below, the EWS Framework demonstrates good and robust performance in detecting default events that occurred in 2025. It consistently attains daily hit rates of roughly 80%, which increase as the default date approaches, while keeping the false‑alarm rate below 20% throughout the one‑year period^[5].

Figure 1: Daily Hit Rates^[6] and False Alarm Rates^[7]

When examined at the regional level, hit rates exceed 80 % in every region, while false‑alarm rates remain comparatively low, as illustrated in Figure 2 below.

Figure 2: EWS Performance by Region^[8]

Figure 3 presents a breakdown by selected industries.^[9] The majority of industries show hit rates exceeding 85% while maintaining false‑alarm rates around 20%.

Figure 3: EWS Performance by Selected Industries

In conclusion, this out-of-sample test demonstrates the reliability of the EWS Framework in detecting 2025 default events across different regions and industries. Amid global trade and geopolitical uncertainty, an automated, efficient and flexible EWS framework equips risk managers and investors with the agility and foresight needed to navigate emerging risks.

If you want to learn more about RiskGauge™ and EWS, please click here.

Appendix

Additionally, Table 1 below illustrates how early the EWS framework issued high‑risk (red) signals for 2025 defaulters. It is worth mentioning that more than 80% defaulters were flagged at least 12 months in advance, and nearly 90% were detected 3–6 months prior, giving businesses ample time to conduct due diligence, and potentially reduce their exposure.

Table 1: EWS Red Signals Prior to Defaults

Source: S&P Global Market Intelligence as of February 06, 2026. For illustrative purposes only.

^{[1] Default, Transition, and Recovery: Default, Transition, and Recovery: U.S. Leads 2025 Drop In Global Corporate Defaults | S&P Global Ratings (spglobal.com)}

^{[2] Please refer to the Early Warning Signals Framework White Paper.}

^{[3] Key development defaulters and corporations rated CC or lower are included to increase the sample size.}

^{[4] Only the first default event for companies with multiple defaults during the analysis period was selected.}

^{[5] One year prior to default date for defaulters, and one year prior to December 31, 2025 for non-defaulters.}

^{[6] Hit rate = Number of defaulters triggered “red” / Number of defaulters}

^{[7] False alarm rate = Number of non-defaulters triggered “red” / Number of non-defaulters}

^{[8] Based on the whole period aggregated results. ASEAN (except Singapore) and Developed Asia and Pacific are merged together due to the limited number of defaulters.}

^{[9] Based on the whole period aggregated results. Only industries with >= 7 defaulters are plotted for illustrative purposes.}