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Property In Transition: Slowing Economies And Shrinking Demand Pressure The Credit Outlook For Office Landlords

A resurgence of COVID cases, along with commuting and safety concerns, have delayed the return to office, and employees are settling into rituals of remote work. Despite increased vaccination rates and a lower death rate from COVID, office utilization remains low globally; it has been somewhat stronger in Tokyo, where office utilization is about 60% of pre-pandemic levels, compared to the U.S., where office utilization was only about 44% for a 10-city average as of July 2022, according to Kastle systems, which tracks keycard access to buildings.

U.S. Financial Institutions CRE Asset Quality Is Resilient: Long-Term Risks Remain

U.S. banks' credit quality, including commercial real estate (CRE), remained pristine in second-quarter 2022 relative to historical levels. Overall net charge-offs in the second quarter totaled 22 basis points (bps), compared with 26 bps a year ago, while delinquency rates also remained low. Our base-case expectations are for bank provisions across all loan categories to total about $40 billion to $50 billion in 2022, versus reserve releases of $31 billion last year. The increase is from loan growth, modestly higher charge-offs (30 bps-35 bps), and increased concern about the economy decelerating.

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Our weekly ratings digest, including key themes, publications, ratings changes, asset class trends, financing conditions, and debt issuance.

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Credit Trends:

Global Debt Leverage: China’s SOEs Are Stuck In A Debt Trap

Published September 20, 2022

Many of China's state-owned enterprises (SOEs) are caught in a debt trap. S&P Global Ratings estimates that 90% of the bottom SOEs by revenue have had to borrow more to repay existing loans. That makes external intervention likely. Why? It's hard to see how these SOEs would be able to extricate themselves from their hefty debt burdens without such help, given the slowdown in the economy will make operations more challenging.

Why it matters: Corporate debt in China reached nearly US$29 trillion in the first quarter of 2022. To put this in perspective, the amount is roughly equivalent to the size of total U.S. government debt.

Global Refinancing Rising Rates And Slowing Issuance Drag On Corporate Funding Conditions

Despite challenging primary market conditions, near-term refinancing demands have eased this year, with corporate debt maturing over the next 18 months falling by 11% year to date.

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European Downgrades To 'CCC' Increase As Refinancing And Inflation Risks Bite

The tally of European corporate issuers rated 'CCC+' or lower dropped to 52 as of June 30, 2022, from 59 as of March 31, though the number of downgrades to the 'CCC' rating category rose to five in the quarter.

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As the global credit markets move from crisis to recovery, we want to ensure you have access to the insights and forecasts you need. Subscribe to our fortnightly update which shares a curated list of the best thematic articles and topics from across S&P Global Ratings. Including podcasts, videos and upcoming webinars and events.

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Economic Research:

Maybe Central Banks Are Not Turning Japanese After All

Published September 19, 2022

The inflation story has changed dramatically over the past year and now is arguably a good time to take stock of how far we have come in 2022. One conclusion is very clear: many policy makers and market economists were late in identifying the persistent component of inflation. In the final months of 2021, the debate was still around transitory versus persistent inflation with many economists, including ourselves, continuing to torture the data to tease out a plausible transitory story. Events have shown clearly that the persistent view was correct: inflation did not go away on its own. As a result of this inflation shock, the era of central banks struggling to reach their policy targets (generally around 2%) from below has come to an end, at least for now. The only exception is Japan.

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The Underbelly Of Germany’s Export Prowess

Germany, uniquely among export-driven economies, has become more open over the past few decades and its supply chains have become longer and deeper--and therefore more vulnerable.

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U.S. Recession: Are We There Yet?

Second-quarter U.S. GDP confirmed what many already knew: Economic conditions are worsening. Real U.S. GDP contracted at a 0.9% annual rate in the second quarter after tumbling 1.6% in the first quarter.

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Sustainable Finance:

Sustainability Quarterly Third Quarter 2022 Edition: Turning Climate Goals Into Action

Published September 12, 2022

Around the globe, countries are facing growing exposure to the physical impacts of climate change. These impacts take center stage as we head into a busy fall season of climate events — starting with Climate Week NYC in September and culminating with the U.N.’s Climate Change Conference, known as COP27, in November. The inaugural S&P Global Sustainability Quarterly is a roadmap to understanding this evolving climate landscape.

S&P Global Ratings ESG Materiality Maps

As environmental, social, and governance (ESG) factors become integral considerations in the marketplace across many types of analysis, investors are seeking more and clearer information about what these mean, including their relevance and materiality. In this context, S&P Global Ratings and S&P Global Sustainable1 have jointly researched two dimensions of ESG materiality: stakeholder materiality and financial materiality.

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Global Sustainable Bond Issuance: Likely To Fall In 2022

We now forecast a 16% decline in GSSSB issuance this year, to $865 billion. Yet, it should continue to comprise 12% of global bond issuance for the combined financial services, nonfinancial corporate, and public finance sectors.

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