From Pandemic Shocks to Tariffs Turbulence: Assessing Differential Credit Risk Impacts Across Global Consumer Discretionary Sector

The consumer discretionary sector is a critical component of the global economy, encompassing industries that supply discretionary goods and services such as automobiles, apparel, electronics, and leisure activities. As a key driver of economic growth, it serves as a barometer of consumer confidence and spending behavior. Credit risk assessment in this sector is essential for investors and risk managers to navigate market uncertainties due to its heightened sensitivity to economic cycles, policy changes, and evolving market dynamics.

Consumer discretionary companies have shown notable resilience in the post-pandemic era. Many have rebounded from financial strains of the pandemic as consumer demand has returned to pre-COVID levels. However, looming U.S. tariffs reintroduce sector-wide risks, though their impact may vary significantly across industries. For example, U.S. tariff on foreign auto imports is starting to drive up consumer prices, dampen demand, and spur increased capital expenditures as manufacturers relocate production - a shift likely to strain supply chains and squeeze the profitability of the automakers and their suppliers. In addition, a series of country- or region-specific reciprocal tariffs went into effect on April 9, many at much higher rates than the baseline 10% tariff rate as of April 3.[1] The abrupt policy shift is introducing dramatic uncertainty to the financial market and impacting all segments that rely on stable global supply chains.

S&P Global Market Intelligence’s RiskGauge™ is an analytical tool that integrates multiple risk factors, including business risks, financial health, and market dynamics, to assess the overall credit strength of companies across a variety of corporate and financial sectors. This systematic approach offers a holistic assessment of a company’s creditworthiness. Furthermore, it generates early-warning signals for elevated credit risks, enabling stakeholders to proactively identify financial vulnerabilities, mitigate potential exposure to defaults, and align strategic decisions with evolving market dynamics. In this case study, we employed the RiskGauge™model to conduct a comparative analysis of credit risk of companies in the global consumer discretionary sector.

Figure 1: Relative Change of RiskGauge Median Benchmark[2] (April 11, 2025 vs. June 30, 2024)

Source: S&P Global Market Intelligence. As of April 11, 2025. For illustrative purposes only.

Figure 2 demonstrates the evolving risk profiles of sub-industries within the consumer discretionary sector from the pandemic era to the present, highlighting their divergent post-crisis trajectories. Taking hotels, restaurants & leisure, and automobiles industries as an example, both industries experienced significant credit stress during the COVID-19 pandemic (2020-2022), with median RG default probabilities spiking sharply as consumer demand collapsed. Post-pandemic risk profiles, however, have diverged - particularly since 2024. Automotive sector has grown more vulnerable to tariffs risks due to its reliance on globalized supply chains (e.g., parts sourced from Mexico/Canada), higher labor and production costs associated with reshoring, and consumer price sensitivity. In contrast, consumer services industries (e.g., hotels and cruises) face less direct exposure to imported goods or trade policy disruptions due to their more localized operations.

Historically, the median RG benchmark PD for global automobile manufacturing industry, represented by the orange line, ranked among the lowest in the consumer discretionary sector. However, the industry’s median PD surged dramatically in the latter half of 2024, surpassing even the previous peak levels observed during the pandemic. This underscores the auto industry’s acute vulnerability to ongoing trade tensions and shifting geopolitical dynamics.

To illustrate how RG and related Early Warning System (EWS) work at individual company level, let’s take a deep dive into two specific companies in the aforementioned industries. The EWS continuously monitors RG PD scores, applying predefined thresholds to detect deviations that signal rising credit risk and the heightened potential for default crystallization. Risk alerts are communicated via an intuitive traffic light color scale, where each color indicates a distinct default risk level. This framework translates granular PD fluctuations into actionable strategic guidance, enabling stakeholders make timely and informed decisions, whilst focusing on the companies that matter.[3]

Figure 2: Comparative Analysis of RiskGauge Median Benchmark Trend by Sub-industry  

Source: S&P Global Market Intelligence. As of April 11, 2025. For illustrative purposes only.

Carnival derives the majority of its passenger base from North America and Europe. As shown in Figure 3, the EWS has consistently generated clear signals over the past five years. The EWS shifted to “amber” in early 2020 during the onset of the COVID-19 pandemic, escalating to “red” later that year amid severe operational disruptions and heightened default risk. Post-pandemic, the EWS reverted to “green” as Carnival regained financial stability through robust booking demand, deleveraging efforts, and a rebound in consumer travel spending. S&P Global Ratings’ issuer credit ratings (ICR) are included for comparative context (Figure 4). This alignment highlights the EWS’s ability to distinguish between normal fluctuations in RG PD scores and material credit risk events, demonstrating its value in proactive credit risk management.

Figure 4: Historical Evolution of Credit Risk for Carnival Corporation & plc (2020-2025)

Source: S&P Global Market Intelligence. As of April 11, 2025. For illustrative purposes only.

The EWS based on RG PD scores effectively signaled the deterioration of Stellantis N.V.’s financial health, shifting to “amber” in August 2024 (Figure 5) to reflect heightened credit risk. This decline was driven by plummeting profitability due to inventory management challenges in North America. By early 2025, the company faced intensified earnings pressures following the introduction of new U.S. tariffs on vehicle imports from Mexico and Canada. S&P Global Ratings downgraded Stellantis’ issuer credit rating to ‘BBB’ from ‘BBB+’ in March 2025, while RiskGauge scores had deteriorated a few months ahead of the rating action, with default probabilities rising steadily through March 2025 (Figure 6).

Figure 6: Evolution of Credit Risk for Stellantis N.V. (2024–2025)