EMERGING & ESTABLISHED RISKS
What We're Watching: Key Themes 2025
The intensifying global trade war will likely weaken global credit conditions, threatening what has been a fairly favorable environment for most borrowers. While market volatility is likely to continue, ratings performance has so far exhibited resilience.
Key Themes
S&P Global Ratings sees 2025 as a year of promise and peril. The descent in policy interest rates and soft landings in many major economies may deliver on the promise of more favorable credit conditions. But intensifying geopolitical and trade tensions increase the peril present in an already tumultuous environment.
We are closely watching the credit implications of emerging and established risks—trade, tariffs, and policy; digital infrastructure and innovation; changing capital flows; energy and climate resilience; and debt markets in transition—over what promises to be another tumultuous year for global markets.
Trade, Tariffs, & Policy
S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses—specifically with regard to tariffs—and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly.
Key Insights
Featured
Tariffs, Slow Growth, And Uncertainty Amplify Risks For Private Credit
Heading into 2026, uncertain macroeconomic factors--including slowing growth, a softening labor market, weaker consumer sentiment, and a restrictive tariff policy--have prompted market participants to more closely assess credit risks across both public and private credit markets.
Tariff policy has evolved substantially from the initial announcement in April. While direct lending borrowers are more likely to face second-order effects than be directly affected, these borrowers are often more highly levered with less pricing power than larger firms, making them even more reliant on a strong economy.
Despite several risk factors in the market and a high degree of uncertainty, credit has shown its resiliency so far this year with surging issuance, narrow spreads, and a falling default rate.
Digital Infrastructure & Innovation
As global and regional markets race to finance and adopt the technologies of the future, the technological revolution is taking shape today. Demand for digital infrastructure (such as data centers and fiber projects) is likely to reshape entire sectors, while innovation (including decentralized finance and AI adoption) will foster broader operational and business model disruptions. This era of growth and discovery also heightens risks. Amid increasing technological dependency and global interconnectedness, cyberattacks pose a potential systemic threat and significant single-entity event risk.
Key Insights
Featured
Data center investments are increasingly moving the macro needle
The data center boom powering the AI revolution is clearly moving the macro needle, especially in the US. This goes well beyond the physical construction of data centers.
Preliminary data suggest that investments in data centers and related high-tech activities led to US GDP being about 0.5 percentage point larger in the second quarter of 2025 than it would have been if businesses’ spending on data center and power construction, information processing equipment, software, and research and development had grown in line with the 2011–2022 trend. 2022 marked an inflection point for data center investment due to multiple factors, including the public release of ChatGPT and the passage of the CHIPS and Science Act.
Looking ahead, the key question is the payoff. Will the surge in data center investment generate productivity gains and fulfill the promise of a multiyear boost in growth?
Any boom in AI-driven growth will likely create a windfall and raise distributional issues. Will labor be augmented or replaced? Tensions are inevitable.
Debt Markets In Transition
Market participants' need for transparency on the full scope of credit risk will expand as the financial system evolves, with increasing interplay and interconnection between public and private markets.
Key Insights
Featured
Secondary Markets: Loan Prices Face Worst Month Since April
The average bid of first-lien term loans fell in October for the first time since the tariff-induced April sell-off amid increased volatility.
The average bid dropped 19 basis points by the end of October to 99.11 from 99.30 as of Sept. 26.
With investors decreasing their risk over the month, lower-rated loans performed worse than their higher-rated counterparts.
Loan mutual fund and exchange-traded fund (ETF) flows had a negative reading in October with $1.6 billion of outflows--the first since the staggering $16.1 billion of outflows in March and April--as investors shied away from risky assets.
Changing Capital Flows
Fundamental geopolitical changes at play will likely lead to material shifts in capital flows between regions, sectors, and asset classes. Downside risks remain high amid increasing market volatility, and investors are rebalancing their portfolios to adjust for shifting risks—anticipating additional uncertainty. Borrowers (especially those at the lower end of the ratings spectrum facing still-elevated borrowing costs and tighter access to credit) will need to adapt to changing capital flows from long-duration speculative assets to safer havens, with implications for overall market liquidity, currency reserves, and investment in emerging markets.
Key Insights
Featured
Global Banks Outlook 2026: Resilience Amid Uncertainty
Our outlook for global banks remains steady with broad ratings stability anticipated in 2026. As of Oct. 31, 2025, 85% of our outlooks on bank ratings were stable. While we expect the banking sector to adjust well to any second-order impacts from higher global trade tariffs and regional conflicts, the risks to our baseline remain on the downside.
We see four key downside risks to bank ratings:
1. An escalation of the geopolitical situation, including the Russia-Ukraine war and Middle East conflict;
2. A stronger-than-anticipated spillover from the tariff shock to the real economy and financial markets;
3. A weakening of banks’ regulatory environment that would limit the effectiveness of supervisory action or weaker global coordination in times of stress; or risks continuing to migrate out of the banking system to nonbank actors; and
4. Evolving risks including new technologies (such as generative AI), digitalization, cyber, and climate change that could widen credit differentiation, given that adaptation to such changes could be positive or negative.
Energy and Climate Resilience
More severe and frequent extreme weather events and worsening physical climate risks continue to influence credit fundamentals, and threaten to disrupt supply chains without adaptation. Low- and lower-middle-income countries are the most vulnerable and least ready to adapt. At the same time, the energy trilemma of affordability, security, and sustainability is increasingly coming into focus as the transition evolves.
Key Insights
Featured
Climate Transition Trends: Airlines Face A Long-Haul Decarbonization Journey
Most airlines globally have announced climate-related targets and are taking measurable steps to reduce emissions, but we expect only modest reductions in emissions in this hard-to-abate sector by 2030.
Applying our CTA analytical approach to 38 airlines globally, we estimate that all of them would receive a current shade of Orange, indicating activities that are not currently consistent with a low-carbon, climate resilient future, due to their high reliance on fossil fuels.
We expect about 29% of the airlines we analyzed to make some transition progress over the next five years, noting their plans to switch to more fuel-efficient aircraft and expand production and consumption of sustainable aviation fuel (SAF), a technology that is still in its nascent stage.
However, we think the availability and price of SAF, the dilution of efficiency gains as airlines expand, delays in the delivery of modern fuel-efficient planes, and the absence of scalable low-carbon propulsion systems could hinder the achievement of the airline industry's decarbonization goals.
Megatrends
Key Insights
Credit Implications Of Global Aging: A Complex Interplay
Aging populations, like other global megatrends such as increasing digitalization, are gradually reshaping our world, and often in unpredictable ways. Global aging, typically stemming from declining birth rates and longer life expectancies, is a measurable trand in most geographies. Yet it's difficult to predict the likely credit impacts, how material they may be, and when they might unfold. Some credit impacts have already emerged while others may take several years.