While global credit conditions have so far proven resilient in the face of geopolitical tensions and other risks, the question becomes: Can this hold true as pressures— specifically with regard to trade—intensify?
S&P Global Ratings’ Top Global Risks include the possibility of trade and investment interruption, related primarily to U.S. President Donald Trump’s recent imposition of stiff tariffs against China; increased asset price volatility and the possibility of liquidity reversals; and geopolitical tensions, specifically involving North Korea and Russia.
- Trade tensions resulting from new U.S. tariffs pose risks to benign credit conditions even though direct impacts for the U.S. could be minimal
- The stronger near term outlook increases the likelihood that U.S inflation will move up and the Fed moves its policy rate up four times this year
- Recent developments could break the impasse in NAFTA negotiations and bolster Canada’s growth prospects, mitigating risks of high consumer debt disrupting the economic expansion
- Credit conditions have continued to benefit from the broad based recovery in Europe, albeit with some Brexit related headwinds in the U.K
- Global trade tension is rising rapidly and could reduce risk appetite and fuel financial market volatility, while geopolitical risks remain problematic
- A weak U.S. dollar and strong euro is pressuring European exporter’s competitiveness and making the ECB’s task of generating higher headline inflation more difficult
- Credit conditions in Latin America remain favorable, supported by domestic consumption and an advantageous global economy
- Although Mexico is exempt from U.S. steel and aluminum tariffs, the increased possibility for additional tariffs, trade skirmishes
- Elections may bring some volatility to debt markets and perhaps higher funding costs and disrupt otherwise favorable financing conditions
- Fears of a China-U.S. trade war cloud otherwise positive momentum in the Asia-Pacific's macroeconomic outlook, financial conditions, and sector trends
- Asia-Pacific growth is mixed -- India (strong, led by investment), Australia (mediocre, held back by soft investment, net exports), while exports, industrial production lift the Tiger economies
- Despite marginally tighter credit standards in emerging Asia, financing conditions remain favorable