The Russia-Ukraine military conflict could have profound effects on macroeconomic prospects and credit conditions around the world. Leading up to, and during, the conflict, Western countries announced stringent sanctions on Russian entities and individuals. This raises the risk of restricted trade and capital flows, and could weigh on overall confidence and business conditions. In the longer term, the disagreements between Russia and NATO over security concerns will likely persist. The rising geopolitical risk can lead to broader ramifications (see chart 1).

Please see our macroeconomic and credit updates here: Russia-Ukraine Macro, Market, & Credit Risks.

Rating Actions

S&P Global Ratings is publishing a regularly updated list of rating actions it has taken globally on financial and nonfinancial corporates, sovereigns, and international public finance. These are public ratings where we cite the Russia-Ukraine conflict, energy prices, or both as factors driving the decision. The latest edition is: "Rating Actions Waypoint: The Russia-Ukraine Conflict," with data as of July 19, 2022.

We have also revised our country risk assessments on Russia, Ukraine, Belarus, and Eastern Europe and Central Asia since the start of the conflict. The latest is Insurance Industry And Country Risk Assessment Update: January 2023.

International sanctions increase operating and financial risks, and therefore the likelihood of a default, of entities affected, as do judicial actions, capital controls, and other payment restrictions. Failure to pay on time and in full can lead to a default even if the obligor's inability to pay stems from sanctions or other actions taken by governments outside the obligor's home jurisdiction. In the Credit FAQ "How Our Definition Of Default Takes Account Of Sanctions And Other Types Of Payment Restrictions," published April 14, 2022, we answer questions from investors about how it determines whether a default has occurred under such scenarios.

Key Takeaways From Our Relevant Published Reports

Credit conditions

1. Global Credit Outlook 2023: No Easy Way Out, Dec. 1, 2022

• As we end a year in which COVID, a war in Europe and an associated energy crisis, and high inflation roiled markets and slowed the global economy, early signs of easing of some of these pressures provide hope that credit conditions could stabilize in the second half of 2023. But finding a way out of the strains weighing on credit leaves little room for error.
• In the near term, S&P Global Ratings expects pressures on credit ratings to intensify, as corporate borrowers find it more difficult to pass through high input costs to consumers struggling with rising prices and a mild recession in some of the world's largest economies. We forecast speculative-grade corporate default rates in the U.S. and Europe to double. As major central banks remain hawkish to fight inflation, governments have diminishing fiscal options to deploy after piling on debt during the pandemic.
• Many borrowers built up enough buffers during the long stretch of favorable financing conditions to ride out a rough patch—at least for some time—supporting credit quality in many sectors. However, ratings are lower than they were prior to the pandemic, and debt levels higher, with 29% of nonfinancial corporates rated 'B-' or below.
• Risks to our base-case scenario remain firmly on the downside, given an increasingly fragmented and fragile geopolitical situation. Tighter financing conditions on the back of entrenched inflation, a deeper and longer-than-expected recession, and persistent input-cost inflation could squeeze further corporate margins and government balances, leading to sharper credit deterioration.

2. Global Credit Conditions Downside Scenario: Inflation, Geopolitics Are Twin Threats To Our Base Case, Dec. 8, 2022

• This paper lays out a downside scenario to S&P Global Ratings' recently published macro baseline. It is based on a set of alternate projections for 15 key economies and determines the effects on three key economic variables (growth, inflation, and unemployment) for 2023-2025. We estimate this scenario has a roughly one-in-three likelihood of materializing.
• The downside scenario is centered on two key assumptions. First, inflation pressures are more entrenched than in our baseline and require a stronger and longer policy response, particularly from the U.S. Federal Reserve. Second, the Russia-Ukraine conflict drags on, exacerbating the ongoing energy crisis and heightened risk-aversion.
• Europe would be hit the hardest. Growth in the eurozone would be 90 basis points (bps) weaker than in our base case in 2023. Germany suffers an extended recession, with growth 1.2 percentage points lower in 2023, and 90 bps lower in 2024. Inflation is 1-2 percentage points higher than in our baseline in 2023 and declines gradually, remaining above target until 2025.

3. Credit Conditions Asia-Pacific Q1 2023: Still Above Water, Dec. 1, 2022

• Soft rebound. Unlike in the U.S. and Europe, growth in Asia Pacific is likely to pick up slightly--to 4.3% in 2023 from 4.1% in 2022 as China begins easing on COVID lockdowns.
• Japan to hike. We now expect Japan will follow other Asia-Pacific central banks (China being the exception) to hike policy rates. Financing conditions may tighten in 2023.
• Inflation tail. Despite commodity prices softening from weaker demand, Asia-Pacific's weak currencies will keep imported prices high, with a flow-on effect on inflation.
• China recovery. An easing of COVID containment policies by China is critical for its economic growth recovery, as the impact of support initiatives are likely to be limited.
• Downside remains. Notwithstanding the soft economic rebound, global credit headwinds and structural risks (including climate and cyber) indicate still-high downside risks.

4. Credit Conditions Emerging Markets Q1 2023: Downturn Exacerbates Risks, Dec. 1, 2022

• Credit conditions in emerging markets (EMs) will remain pressured during 2023, while economic stress will be taking a toll mostly on sovereigns and households.
• The balance of risks for EMs is firmly on the downside, given that rapid monetary tightening is potentially pushing major economies into recession and strengthening the U.S. dollar.
• Financing conditions will probably remain restrictive during 2023, because we expect policy rates and overall financing costs to stay elevated next year.

5. Credit Conditions Europe Q1 2023: Time To Face The Music, Dec. 1, 2022

• Credit prospects appear dimmer in 2023 as Europe grapples with a rapidly changing world order as war, energy transition, and supply chain vulnerabilities create a more volatile economic environment, notably with inflation soaring to multi-decade highs.
• Extended rate rises to rein in inflation, even as a shallow recession takes hold in the region, could continue to expose hidden risks as liquidity shrinks, and make refinancing difficult for more stretched households, companies, and even governments.
• Further escalation of the Russia-Ukraine war, energy supply shocks, stubborn inflation, and volatile and illiquid markets all present credit risks that, in various combinations, could trigger a deeper, more prolonged, recession than we currently anticipate.

6. Credit Conditions North America Q1 2023: Worse Before It Gets Better, Dec. 1, 2022

• Sharply rising and higher-for-longer borrowing costs and the prospect of a U.S. recession in 2023 may further strain credit conditions.
• Credit rating trends have turned negative, and we now expect the U.S. speculative-grade corporate default rate to more than double, to 3.75%, by next September.
• The effects of high food and energy prices on discretionary spending are making it harder for corporate borrowers to pass through increased costs. And market liquidity--or the lack thereof--is a growing risk for many lower-rated borrowers.

Chemicals

7. Inflationary And Natural Gas Supply Headwinds Challenge Global Chemicals Sector Stability, Sept. 14, 2022

• Our ratings for the majority of the global chemical companies are stable, benefitting from record operating performance in 2021, and in some instances in first-half 2022, allowing for some deleveraging that has provided rating headroom.
• However, there is growing negative bias for companies sensitive to inflationary pressures and natural gas shortages.
• In a recession, some cyclical subsectors, such as petrochemicals, could face margin pressure from demand destruction and meaningful supply additions. Other commodity sectors, such as fertilizers, should continue to demonstrate resilient performance given the likelihood of structural supply shortfalls stemming from the Russia-Ukraine conflict.
• An extended period of weakness could reduce existing cushions under credit metrics, with financial policy becoming an increasingly important credit factor for global chemical issuers.

8. The Russia-Ukraine War Is Reshaping The Fertilizer Industry, Sept. 12, 2022

• Phosphate, urea, and potash prices have climbed about 190%, 170%, and 280%, respectively, over the past two years, driven to historical and unsustainable highs by supply disruptions post the COVID-19 pandemic, and exacerbated by the Russia-Ukraine war and Chinese export restrictions.
• This is boosting fertilizer companies' profits and credit quality for now, but has also destroyed demand from farmers unable to afford fertilizers and, in turn, increased food insecurity worldwide. It also highlights the need to reduce dependence on Russia, the world's largest fertilizer exporter.
• Yet, investment required to end dependence on Russian and Belarussian fertilizers is being hampered by high inflation, supply shortages, and--in the case of nitrogen fertilizers--uncertainties over the shape of further regulation to decarbonize the industry.

Credit trends and market liquidity

9. Risky Credits: Reshuffling Credit Risk In Emerging Markets, Feb. 1, 2023

• The number of emerging market issuers rated 'CCC+' and lower slightly decreased to 22 as of Dec. 31, 2022, from 23 as of Sept. 30, 2022, which constitutes 13% of the speculative grade universe.
• The latter has progressively declined to 168 as of year-end 2022 from 210 at year-end 2021, mainly as a consequence of China-based rating withdrawals.
• Downward transition risk is moderating, with 36% of issuers rated 'CCC+' and lower on either a negative outlook or CreditWatch, with the highest concentration in the financial industry.
• Issuance was muted in 2022, with refinancing risk mostly concentrated in the utility industry and Latin America region, although the high interest rate environment is paving the way for more distressed exchanges over the coming quarters.

10. Risky Credits: Downgrades Of European Issuers In Q4 2022 Top Pre-Pandemic Levels, Feb. 1, 2023

• Downgrades of European risky credits increased by 13% to 54 in the fourth quarter of 2022, more than 1.5x higher than the pre-pandemic level.
• Three sectors--consumer products, media and entertainment, and capital goods--account for a material 47% of all risky credits by number, while the U.K. has the highest volume of risky debt, around 46% as of Dec. 31, 2022.
• Of the risky credits, 57% had negative outlooks at the end of 2022, meaning we can expect more defaults in 2023. This is due to persistent inflation, slower growth, tighter financing conditions, and continuing geopolitical tensions.
• In our base-case scenario, we expect the European speculative-grade default rate to rise toward the long-term average of 3.25% by September 2023.

11. Global Financing Conditions: Bond Issuance Is Set To Expand Modestly In 2023, With Stronger Upside Potential, Jan. 30, 2023

• We believe global bond issuance, which tumbled 20% last year, will rebound slightly in 2023, but with very different growth rates across asset classes.
• Our projections for 2023 call for modest increases in our base case, but easing inflation, stabilizing energy markets, and falling secondary yields are reasons to be optimistic. As a result, we've increased our optimistic scenarios in the event the global economy manages a soft landing.
• Central banks will continue to raise interest rates. However, even in a more pessimistic scenario, any increases will be less of a shock than the rate hikes of 2022.
• Nonetheless, downside risks remain in this complicated environment--namely, the ultimate course and impact of China's reopening, the Russia-Ukraine conflict, and the currently unresolved U.S. debt ceiling, all of which could disrupt economies and markets if negative outcomes occur.

Cross-sector

12. Asia-Pacific Sector Roundup Q1 2023: Cracks In The Wall, Nov. 14, 2022

• Confluence of headwinds: Asia-Pacific is fighting on four fronts: the global economic slowdown, high inflation, rising interest rates, and weakening currencies. China is contending with subdued growth amid its COVID policy stance and real estate sector woes. And some sectors and issuers in the region are feeling the heat from rising geopolitical tensions (e.g., Asia-Pacific tech firms amid the U.S. Chips Act). These risks are forming cracks in Asia-Pacific's credit wall.
• A greater divide: Monetary policy remains divergent across Asia-Pacific central banks. Most continue to hike rates to slow inflation and stem capital outflows; China and Japan are exceptions. Concurrently, domestic currency depreciation has created winners and losers. The region's exporters benefit from being competitive, but midstream and downstream sectors dependent on imported materials could see costlier inputs, denting margins. The ability to pass through input costs will differentiate corporate sectors.
• Higher financing, tighter liquidity: The availability of and access to financing could tighten as investors and lenders turn more selective. Demand for higher yields and a strong U.S. dollar could intensify debt burdens, particularly for offshore borrowers. To cope, borrowers could turn onshore by tapping bank loan facilities and domestic capital markets. While banks could see higher interest income from such loans, the economic downturn may entail higher loan-loss provisions.
• Negative net rating outlook bias: Risks remain firmly on the downside, underpinning the net rating bias at negative 3% as of October 2022. China's COVID policy and property sector downturn have hit consumption and discretionary spending. Vulnerable industries remain real estate developers and mobility-dependent sectors (such as leisure, retail, and transport infrastructure).

13. Ukraine Conflict Divides Asia's Energy Haves And Have-Nots, March 9, 2022

• For Asia-Pacific, the biggest risk of the Ukraine conflict is market volatility and higher commodity prices; emerging economies with large energy imports are most at risk.
• Most rated issuers in Asia-Pacific have little direct exposure to Russia or Ukraine in terms of revenues, assets, investments, or supply chains.
• A widening of the conflict or further sanctions could push investors to haven positions, involving capital outflow from emerging markets, hitting assets and currencies.

14. Emerging Markets Monthly Highlights: Strong Start To The Year For Sovereign Issuance, Feb. 15, 2023

• Investors have shown increased interest in Emerging Markets (EMs) in the last two months. The reopening of China, energy prices lower than we previously expected in Europe, and more dovish expectations with regards to the U.S. Federal Reserve's tightening cycle have fueled optimism across the markets. Consequently, both sovereign and corporate spreads have narrowed across most EM countries, especially in EM Asia (which we expect to benefit the most from China's reopening) and EM EMEA (due to favorable developments across energy markets).
• Sovereign issuance has boomed across EMs since the beginning of 2023. Even though a significant part of sovereign issuance has been related to China, several investment-grade sovereigns in EM EMEA and EM Asia have also significantly expanded their issuances. As of now the pick-up in sovereign issuance hasn't been followed by EM corporates, but in the past, we've seen nonfinancial corporates tap the markets once sovereigns and government-related entities set interest rate benchmarks. Therefore, we expect nonfinancial corporates will look for opportunity windows to refinance upcoming maturities.
• Nevertheless, we think current trends could potentially reverse. If the market adopts a more hawkish view of the future Fed policies, investor sentiment toward EMs could suddenly worsen and the U.S. dollar could potentially strengthen. At the same time, some EM regions face more uncertainty than others. Central and Eastern Europe remains subject to numerous risks, and despite some improvements in external conditions, our outlooks for several sovereigns in the region remain negative.

15. Russia-Ukraine Conflict: Implications For European Corporate And Infrastructure Sectors, March 16, 2022

• Rising energy costs globally and risks of energy supply interruptions in Europe. Some electricity prices have risen more than 1,000% in just over two years.
• Risk of supply disruptions and counter sanctions. Russia, Belarus, and Ukraine are major industrial raw material and mineral producers, a key source of fertilizers, and important food growers, supplying a quarter of world wheat exports.
• The conflict represents the second global supply shock this decade after COVID-19, with disruptions and bottlenecks due to scarcity of specific raw materials, parts, and port closures, even as China's zero-COVID policy continues to affect trade and supply chains.
• Already significant cost input inflation pressures have been amplified, notably for oil, power prices, and some key raw materials (lithium, nickel, palladium, and wheat).
• Profit margin pressure will start to ratchet up in 2022. Companies will increasingly face the dilemma of raising wages to compensate for cost-of-living increases while maintaining profitable operations.
• Few sectors will benefit from the current situation.
• Slower profits growth and downward margin pressure suggest credit risk premiums need to rise.

16. Energy Transition And Energy Security On The Path Toward Net-Zero, July 26, 2022

• Despite the intensifying urgency to make progress on the path to net-zero emissions, economies are now facing tough choices about how to balance their immediate energy security needs with longer-term energy transition plans.
• These trade-offs will likely have implications for decades to come, especially as the physical impacts of climate change are more pronounced in lower and lower-middle-income countries.
• Markets can play a key role in shaping the path to net-zero, but companies will need to address several intersecting pressures and challenges related to their transparency, disclosures, and actions.

17. Geopolitical Shifts Are Exacerbating Credit Risks, May 31, 2022

• Disruptions stoked by the global pandemic and Russia-Ukraine war are increasing risks of a more divided and unstable global system—and worsened credit conditions.
• Widening systemic inequalities and ideological polarization will likely fuel nationalistic and populist policies that threaten economic inefficiency, credit quality, and social stability. Emerging markets, in particular, are exposed to risks linked to higher interest rates and inflation.
• If the first half of this year has been defined by disruption, the next six months will likely be shaped by increasing fragmentation and ongoing reorientation.

18. How The Russia-Ukraine Conflict Is Affecting Ratings And The Global Economy, March 23, 2022

• Beyond the devastating human costs, the Russia-Ukraine conflict is disrupting economic conditions and financial and credit markets--with implications for our credit ratings.
• The prices of energy, metals, and food have soared--in some cases to record highs--as sanctions and the conflict itself disrupt the key trade flows of Russia's and Ukraine's oil and gas, palladium and nickel, wheat and corn, and other commodities. Energy supply disruptions have countries (particularly in Europe) scrambling to identify new trading partners to secure their energy security and supply chains. Many companies have ended operations or pulled projects in Russia.
• To date, we have taken a substantial number of rating actions on financial and nonfinancial corporations, sovereigns, and international public finance entities in which we cite the Russia-Ukraine conflict, energy prices, or both as direct or indirect factors driving the decision.
• This FAQ addresses frequently asked investor questions on the implications of the Russia-Ukraine conflict on ratings actions and the global economy.

19. Latin American Entities To Largely Skirt Fallout From Sanctions On Russia, April 5, 2022

• Sovereigns. A prolonged deterioration in global economic health could hurt reginal sovereign ratings, despite the limited positive impact of high commodity prices in a few countries. Rising prices would exacerbate domestic inflation, forcing governments and central banks to raise interest rates further to avoid losing monetary policy credibility while they balance the need to sustain GDP growth.
• Corporates. Transportation and food companies are likely to remain the most vulnerable to a scenario of high commodity prices, while export-oriented sectors like metals and mining; forest products and packaging, and agribusiness will continue to thrive, despite also facing margin pressures. Performance will largely depend on companies' ability to pass through cost increases to prices, which could be difficult to achieve if macroeconomic conditions weaken and cause sales volumes to drop, which in turn would also impair profit margins.
• Power and infrastructure. The relatively large base of hydropower in the region lessens to exposure to international oil and gas prices, so high spot market prices don't represent a material threat at least through 2023. However, water scarcity in 2021 hurt Chile, which prompted some Chilean power companies to secure gas in 2022 if dry conditions continue. We expect average spot prices in Mexico to increase in 2022 given its dependency on imported gas in the energy matrix.
• Financial Services. In our view, the direct impact of the armed conflict in Ukraine will be limited for Latin American financial institutions because they have minimal direct exposure to Russia and Ukraine, but the situation has increased uncertainty globally and could lead to indirect effects on the sector.
• Structured Finance. In general, Latin American structured finance transactions don't have direct exposure to Europe, so a scenario of prolonged sanctions to Russia doesn't post a material threat to our rated portfolio.

20. Nordic Credit Outlook: An Uneven Road Ahead, Jan. 9, 2023

• The Nordic economies face a difficult and uncertain economic outlook. The region's countries are up against different challenges, but are, on average, well prepared to weather a recession given generally low public debt levels. However, Nordic governments have limited fiscal space given already high inflation. Finding a way out of these strains leaves little room for policy mistakes that could lead to a deeper and longer recession.
• Nordic banks' earnings prospects are likely to soften. Rising interest rates provide tailwinds for net interest income, but volatile market conditions, a slowdown in credit growth, and high inflation are likely to curtail earnings generation. This, coupled with falling house prices, may put a drag on business prospects for the banks in 2023.
• The end of a golden era of low-cost and ample funding sets in. After nearly a decade of a "lower for longer" cost of goods and interest rates, less-resilient corporates could buckle under tougher economic and market conditions and much higher borrowing costs. Earnings momentum is fading, and the downturn's severity will shape 2023 credit prospects.
• Insurance companies' capital strengthening may come to an end. Nordic insurers have generally proved resilient against market turmoil. Nevertheless, we believe the region's insurers are in the eye of a perfect storm of rising inflation and long-term interest rates as well as depressed capital markets, which may erode capital levels in 2023.
• Nordic LRGs' budgetary performance is set to weaken. Even if growth of nominal tax revenue remains robust due to inflationary support in tax bases, rapidly rising expenditures are likely to outpace revenue growth. Debt is likely to grow moderately as local and regional governments will likely adjust investments, given higher construction costs.

21. Cyber Threat Grows As Russia-Ukraine Conflict Persists, May 11, 2022

• As the likelihood of a prolonged stalemate in the Russia-Ukraine conflict grows, the risk of cyberattacks on financial and public institutions will increase.
• The 2017 NotPetya malware incident shows cyberattacks can quickly spread to global public and private corporations.
• The conflict is spotlighting a rising need for strong cyber governance and affirmative cyber insurance coverage, said S&P Global Ratings cyber specialists at a seminar.

22. For U.S., Ripple Effects Of Russia-Ukraine Are More Concerning Than Direct Exposure, March 18, 2022

• Economy. S&P Global Economics' preliminary estimate in response to developments related to the crisis is that the effect with shave 70 basis points (bps) from U.S. GDP growth this year, with the economy now set to expand 3.2%. The prospects of steadily rising interest rates and persistent inflation are the main drivers of this assessment, with an expected recession in Russia playing only a small part.
• Corporates. The conflict has had minimal direct impact on U.S. and Canadian corporates entities we rate. Only a handful of issuers had any notable direct sales exposure to Russia—and suspended business operations due to sanctions, and discretionary exits due to security concerns or public pressure, have had a limited effect on credit quality. But the ripples in commodities markets and the broader economy are already having a pronounced effect on many.
• Financial Services. The conflict has roiled financial markets and created new risk dynamics across the globe. Although the direct impact for U.S. financial institutions is limited, the situation has created an air of uncertainty. Risks that have arisen for U.S. financial institutions due to the conflict include: cyber risk; operational risk to avoid breaching sanctions; trading losses resulting from higher market volatility; elevated counterparty risk amid higher margin requirements
• Structured Finance. All told, we expect the Russia-Ukraine conflict to have limited direct credit effects on the structured finance transactions we rate globally. U.S. aircraft asset-backed securitization (ABS) is an exception because 48% of the transactions we rate (12 of 25) in the sector have direct exposure to Russia and/or Ukraine airlines.
• U.S. Public Finance. While the diverse sectors that represent U.S. public finance are geographically distant from the Russia-Ukraine military conflict, the geopolitical situation will clearly weigh on macroeconomic and credit conditions. Inflation has been a headwind for all sectors for months, and labor costs, funding services, and capital constructions outlays will likely pressure state and local budgets.
• Insurance. For the vast majority of insurers and reinsurers headquartered outside Russia that have exposure to the country, their exposure is small enough and their capital strong enough for them to avoid a deterioration in credit quality. The same is true for insurers and reinsurers with no direct exposure to Russia, but we continue to assess the impact of macroeconomic and financial market volatility on balance sheets.

Agribusiness

23. Russia-Ukraine Conflict Will Test Agribusiness Supply Chain Efficiencies And Consumers' Appetite For More Food Inflation, March 18, 2022

• Russia and Ukraine are major global exporters of wheat, sunflower seed meal and oil, barley, and potash, an important input to fertilizer.
• The military conflict poses significant risk to the region's 2022 commodity exports. Globally, future harvests could be crimped by fertilizer shortages.
• Direct operating exposure to Ukraine and Russia for most rated agribusinesses is limited. However, the ensuing trade disruption is likely to be credit positive for some, such as grain processors, and credit negative for others, such as protein processors.
• Inflationary pressures in consumer goods, food retail, and food service will be further exacerbated. For many companies in these sectors, preserving credit quality will hinge on the ability to continue to pass on costs to the consumer.

Autos

24. Energy Rationing Could Hit The Brakes On European Auto Production, Sept. 30, 2022

• The indefinite closure of the Nord Stream 1 pipeline is sparking concerns of gas shortages and energy rationing in Europe, which could disrupt the recovery of light vehicle production when supplies of semiconductors and other parts are expected to gradually improve into next year.
• Knowing that the consequences may substantially vary across European countries, automakers, and supply chains, this scenario analysis is a first step to gauge potential downside to our European auto production forecasts over 2023 and is subject to a series of assumptions.
• We estimate 0.8 million-0.9 million light vehicles are at production risk for each billion cubic meters of gas savings required, under our analysis of various energy intensity scenarios.
• Our scenario translates into 7%-15% lower auto production in Europe versus 2021 and 6%-11% lower versus 2019.

Building materials

25. How The Russia-Ukraine Conflict Affects European Building Materials Companies, March 29, 2022

• The Russia-Ukraine conflict, and the related governments' responses, have further intensified the inflationary and highly volatile cost environment that is threatening the profitability and cash flow generation of rated building material companies in Europe. Companies will be tested on their ability to pass through much higher energy and raw material costs in a context where demand will likely weaken.
• In this Credit FAQ, S&P Global Ratings addresses some of the most frequently asked questions we receive from market participants on this topic. Though the situation is still evolving fast, we outline our view on how rising energy costs, amplified supply disruptions, and renewed scarcity of specific resources will impact rated European building material companies.
• Questions that we answer include: What is the impact of the Russia-Ukraine conflict on the European building materials sector? Does S&P Global Ratings still anticipate construction volume growth in 2022? To what extent do the consequences of the conflict weaken the sector's creditworthiness? Despite the sector's resilience, why have you taken negative rating actions in March?

Corporates

26. Asia-Pacific Credit Outlook 2023: Sand In The Gearbox, Feb. 21, 2023

• Slowing economies and weakening demand are likely to dominate corporate operations across much of Asia-Pacific in 2023. High inflation further inflames conditions.
• Borrowing costs will increase for many corporates as interest rates continue to rise. Access to U.S.-dollar funding will remain tight, with domestic markets and bank funding more favorable.
• Uncertainty surrounds China's expected economic performance for 2023 given the scrapping of its zero-COVID policy, the global outlook, and risks around domestic property policies.
• Japan has the lowest percentage of stable outlooks and highest proportion of negative outlooks whereas India and Indonesia have no negative outlooks.

27. APAC Corporates: Inflation, Rate Strains Set In, June 21, 2022

• Increasingly compressed margins and rising borrowing costs are eroding the rating headroom restored in 2021, potentially leading to credit downside.
• About 16% of companies risk breaching downside financial triggers under sensitivity scenarios that account for moderate inflation and rising funding costs.
• The real estate, capital goods, and airport sectors are most at risk due to a higher leverage or sensitivity to cost inflation. Commodities, branded non-discretionary consumer, and regulated utilities are less exposed.
• Firms in China, India, and the Pacific region face higher downside risks due to a preponderance of asset-heavy sectors or a rapid increase in domestic interest rates.
• A doubling of interest spreads from current levels and accelerating inflation across Asia-Pacific could put 25% of rated companies at risk of breaching downside financial triggers through 2023.
• Entities within the 'BBB' to 'CCC' ratings categories are exposed to cost inflation and interest-rate increases well into 2023, with higher debt, rising capital expenditure, and margin compression reducing rating headroom.
• The prevalent risk-off sentiment from investor and increasingly selective capital markets are exacerbating eroding finances for the weaker entities rated in the 'B' category and below.

28. Credit FAQ: Ukraine Conflict And Asian Companies: Commodity Prices, Sentiment Exceed Direct Effects, March 10, 2022

• The Ukraine conflict is raising commodity and energy prices, and increasing market volatility in Asia-Pacific. S&P Global Ratings expects these factors will have the most relevant and immediate credit consequences for the corporate sector in the region. A protracted conflict hitting investor sentiment well into 2022 will complicate access to funding for weaker credits dependent on capital markets to refinance.
• Asia-Pacific entities typically have little or no direct exposure to Russia or Ukraine in terms of revenues, assets, or supply chains. Russian airlines and cargo are an immaterial contributor to traffic at Asian ports and airports, for example.
• In this Credit FAQ we address investor questions on the direct and indirect effects of Ukraine conflict on rated companies in Asia-Pacific.

29. Recession Risk And Ratings: What Recession Could Mean For European Speculative Grade Nonfinancial Corporates, June 23, 2022

• Recession risks are rising. Although not our base case, we have applied three hypothetical downturn scenarios to the European speculative grade nonfinancial entities that we rate to assess the impact of varying degrees of downturn. The most severe would deliver a 20% fall in EBITDA by end-2023, in line with previous cycles. We have tailored the degree of stress to industry and risk characteristics at the company level.
• European corporates are well positioned to weather milder downturns almost unscathed. Financial metrics might deteriorate, but not beyond pandemic peaks and pressure would be confined to the most vulnerable issuers. Results for 2021 have been exceptionally strong, bolstering cashflow and reducing leverage.
• A full recession scenario would stretch financial metrics beyond pandemic levels and pressure ratings further. This scenario could increase adjusted median 2023 leverage to 7.8x versus a pandemic peak of 6.6x and our base-case assumption of 5.3x. 50% of speculative grade issuers would have negative free operating cash flow versus 30% last year. Median leverage for 'B+' rated issuers would become highly leveraged at 6.8x. Downgrade risk in the 'B' rating category and below would be significant.

30. Industry Top Trends 2023: Compilation And Key Themes, Jan. 31, 2023

• The year ahead will be another challenging one for many industries as they face weaker demand, sustained cost pressures, and higher financing costs. This follows a difficult year for financial markets, as investors came to terms with resurgent inflation, supply chain disruption, rapidly rising interest rates, war in Europe, and continuing aftershocks from the COVID-19 pandemic.
• Prospects appear finely balanced, with much resting on the severity of the economic slowdown and the persistence of inflation. Debt metrics have improved rapidly after a spurt of growth, but a lurch back into severe recession would rapidly unravel credit prospects.
• These reports outline S&P Global Ratings' key industry assumptions for 2023, as well as our views on key risks and opportunities that may affect sector trends. They draw on the assessments of more than 5,500 corporate and infrastructure entities that we rate globally. By presenting our assumptions, risks, and ratings trends in a consistent format, we hope to aid understanding of our analytical assessment of industry trends.

31. Global Debt Leverage: Cash Flow Negative Corporates Could Double In 2023, Dec. 12, 2022

• Worsening conditions in 2023 could temper this year's tentative rebound in average earnings. Our stress tests show less-creditworthy corporates are still vulnerable. Under our base case, cash flow negative firms would rise to 11%, from 8% in 2021.
• Severe stress test shows double trouble. We've repeated the tests we last did in July. In our severe test in which interest spreads and inflation increase by 300 bp each, the cash flow negative ratio doubles to 16%.
• China corporates remain most vulnerable. As we expected, the cash flow negative ratio of this cohort rises the most under stress (in percentage point terms). This is followed by Asia-Pacific ex-China and emerging markets, then Europe and North America.

32. If Stagflation Strikes, Loss-Making Corporates Will Double Globally, July 12, 2022

• Stagflation scenario. Lower global growth, inflation spikes and higher interest spreads could see corporate loss-makers (potential defaulters) rise 2.4x to 17% by 2023.
• China fares worst. Its loss-makers triple to 22% under our severe scenario. Accounting for a third of global corporate debt, China's corporates pose a contagion risk.
• Struggling sectors hit. Consumer discretionary, industrials and real estate have not fully recovered from the COVID crisis. Under stress, their loss-makers rise by over half.

33. Italian Corporate Outlook 2023: High Energy Costs May Constrain Competitiveness, Nov. 15, 2022

• Italy and Germany are the two largest European countries most vulnerable to a gas supply shock, given their heavy use of natural gas and significant dependency for this gas on Russia. The share of electricity production from gas in Italy stands at about 51%.
• First-half 2022 saw still robust demand and pricing power across the sector, despite supply chain disruptions due to the Russia-Ukraine conflict and continued lockdowns in China. For second-half 2022 and into 2023, we anticipate weaker results associated with lower volumes and less favorable pricing due to increased economic risks and inflationary pressure.

34. Japanese Companies Exposed To Russia Have The Finances To Buffer Sanctions Hit, Feb. 25, 2022

• Japanese companies operating in Russia have sufficient financial cushions to weather sanctions on the country. Various sanctions announced, such as tech export bans, and ones that could potentially follow will directly and indirectly affect some Japanese companies. Among these are Japan Tobacco Inc. (JT; A+/Stable/A-1), a leader in Russia's cigarette market, along with general trading and investment companies Mitsui & Co. Ltd. (A/Stable/A-1) and Mitsubishi Corp. (A/Stable/A-1), which own energy and resource assets in Russia, including liquefied natural gas.
• JT has a sufficient financial cushion to underpin our current ratings on the company even if its Russia business worsens somewhat.
• We think Mitsui can absorb potential risk despite relatively high exposure to Russia.
• Mitsubishi is less exposed to Russia than Mitsui. It expects a high net profit of ¥820 billion in fiscal 2021, which should allow it to absorb the present risks.

35. Latin American Corporate And Infrastructure Credit Outlook 2023: Dwindling Fundamentals, Elusive Funding, Feb. 13, 2023

• While growth trajectories across Latin America's (LatAm's) largest economies are likely to worsen in 2023, S&P Global Ratings expects inflation and policy rates to scale back to more normal levels, which would allow consumer spending and economic activity in general to recover more rapidly in the future.
• Our outlook bias is close to zero, reflecting a general stability across sectors and geographies, and the fact that refinancing risks for 2023 are largely manageable. Also, yields of international bonds issued by LatAm corporate and infrastructure entities have dropped between 100 and 200 basis points (bps) across the main rating categories, indicating a potential return to more normal levels. We view the persistence of high interest rates as a major threat to credit quality.
• After a record level of issuances in 2022 across several markets of the region, recent defaults may slow down refinancing activity and exacerbate short-term risks for issuers with weaker credit quality. We expect to see a recalibration of borrowing costs and a gradual normalization in Brazil.
• Sectors, which are more sensitive to interest rates such as consumer products; real estate and homebuilders, and retail, as well as those sectors with more leveraged capital structures, such as transportation and telecom and cable companies, will face stronger headwinds in 2023. Commodity-driven businesses--agribusiness, forest products and packaging, metals and mining, and oil and gas--should post a robust performance, although prices will slip from 2021-2022 highs.

36. How South Korean Corporates Are Coping With Rising Macro & Operational Challenges, July 6, 2022

• Credit quality of Korean corporates remains resilient year-to-date, despite increasing macroeconomic and operational headwinds. Positive rating actions outnumbered negatives in 1H22, although at a more moderate rate than in 2021.
• We identify the following five factors as noteworthy: 1) Inflationary pressure – corporates with pricing power are coping well with rising input costs. 2) China slowdown – China is the largest export destination for Korea. Its impacts are broad-based, but we have seen Korea's corporate presence in China weaken gradually in the past few years. 3) Russia-Ukraine conflicts – Auto sector is most exposed. However, Hyundai-Kia is offsetting the negative impact by growth in other markets. 4) Interest rate hikes – Rated Korean corporates' credit metrics are relatively less sensitive to higher funding costs. 5) Consumption slowdown – Asset price corrections and weaker sentiment heighten risks to operating performance.
• Given uncertainties from the macro drivers continuing, we expect the credit outlook for Korean corporates could be relatively more difficult than the preceding 12 months but remain balanced overall.

37. U.S. Corporate Credit Outlook 2023: Profit Pressures, Refinancing Risk, Feb. 2, 2023

• Near-term profit pressures on U.S. corporate borrowers look set to intensify, as many find it more difficult to deal with still-elevated input costs and waning demand amid the prospects of a downturn in the world's largest economy and diminished consumer purchasing power.
• Benchmark borrowing costs will likely go higher still, as the Federal Reserve continues its fight against inflation. As borrowers face a prolonged period of elevated interest rates, concerns about liquidity are growing as the Fed withdraws monetary support at an unprecedented pace.
• Refinancing pressure is building. Corporate debt coming due rises steadily through 2026, and the share of speculative-grade maturities surpasses that of investment grade in 2027. Faced with an overhang of pandemic-era debt that begins to mature in 2025, companies will soon look for refinancing opportunities.

38. Searching For Stress Fractures: Evaluating The Impact Of Interest Rate And EBITDA Stresses On U.S. Speculative-Grade Corporates, May 25, 2022

• In 2022, our ratings should be relatively resilient in a moderate stress environment, but we expect the proportion of U.S. speculative-grade issuers with negative outlooks will trend back to historical levels in the 20%-25% area from about 15% today.
• Downgrade risks for 2023 are building as the cumulative effect of rising interest rates and inflation takes an increasingly larger bite out of issuers' profitability and cash flow.
• In our high-stress scenario, the share of issuers generating negative free operating cash flow (FOCF) jumps to around 39%, from about 14.9% under our 2022 base case.
• Nevertheless, the pace of downgrades in our high-stress scenario will largely depend on how persistent we think cash flow deficits will be because most issuers face limited near-term liquidity event risks.
• Outside of the 'CCC' category, default risk is highest for 'B-' rated issuers that now account for about a quarter of our U.S. speculative-grade portfolio.
• For 2022, our EBITDA stresses have a larger impact than our interest rate stresses, although the cumulative interest rate increases will become a more significant burden on cash flows in 2023.

Credit trends and market liquidity

39. Default, Transition, and Recovery: The European Speculative-Grade Corporate Default Rate Could Rise To 3.25% By December 2023, Amid Uncertain Backdrop, Feb. 16, 2023

• We expect the European trailing-12-month speculative-grade corporate default rate to reach 3.25% by December 2023, from 2.2% in December 2022. In this baseline forecast, 26 speculative-grade companies would default as slowing economic growth, and elevated interest rates and input costs weigh on profit margins.
• Although energy prices have fallen dramatically from their August 2022 peaks, they are still much higher than in 2021 and the Russia-Ukraine conflict that prompted their recent volatility is far from over. This could weigh heavily on consumer spending in our pessimistic case of a 5.5% default rate.
• Financing conditions have eased within bond markets, but bank lending conditions on loans to firms have stayed more restrictive as floating rates continue to rise. But upcoming maturities are largely manageable, and if inflation continues to decline, this would support our optimistic case of a 1.5% default rate.

40. The European Speculative-Grade Corporate Default Rate Could Rise To 3.25% By September 2023 As Downside Risks Rise, Nov. 17, 2022

• We expect the European trailing-12-month speculative-grade corporate default rate to reach 3.25% by September 2023, from 1.4% in September 2022. In this baseline forecast, 25 speculative-grade companies would default owing to slowing economic growth, a technical recession in the U.K., increasingly difficult financing conditions, and falling profit margins.
• Recession odds are rising for Europe, particularly as interest rates climb and energy prices remain volatile, with the potential for more increases on both fronts. A result of the latter risk is the prospect for an extended period of very high energy prices as a result of EU sanctions on Russia and the curtailment of Russian gas supplies to Europe.

41. Global Refinancing: Pandemic-Era Debt Overhang Will Add To Financing Pressure In The Coming Years, Feb. 7, 2023

• Maturities in 2023 and 2024 appear broadly manageable after companies extended maturity profiles in 2020 and 2021.
• However, borrowers may start to seek financing this year to manage this overhang of pandemic-era debt, which will begin to mature in 2025.
• The speculative-grade share of maturing debt is rising, and funding to refinance could be limited--driving costs higher--if prolonged volatility and uncertainty disrupt financing conditions.
• Speculative-grade borrowers, which have more shorter-duration and floating-rate debt, are more vulnerable to rising benchmark interest rates--and thereby higher funding costs--in the near term.

Economics

42. Food Price Shock Reverberates Through MENA Economies, May 26, 2022

• The Russia-Ukraine conflict will likely continue to pressure food and energy markets, given Russia's pivotal role in energy supply and both countries' significant contribution to global agricultural exports.
• Our analysis found that five Middle East and North African countries—Egypt, Jordan, Lebanon, Morocco, and Tunisia—will be among the hardest hit by economic spillovers from the conflict because their net food and energy imports account for between 4% and 17% of their GDP and they source a large part of their cereal supply from Russia and Ukraine.
• We believe rising food and energy prices and supply insecurities, alongside high youth unemployment in these countries, could lead to higher income inequality and pose risks to existing sociopolitical dynamics.
• Fiscal measures to soften the blow to consumers and producers and prevent social discontent will put pressure on post-pandemic fiscal consolidation. A protracted Russia-Ukraine conflict risks worsening the fiscal dynamics of MENA commodity importers.

43. Economic Outlook EMEA Emerging Markets Q1 2023: Tough Choices Ahead, Nov. 30, 2022

• Terms of trade have worsened considerably for energy-importing economies, especially in European emerging markets (EM), and are unlikely to change meaningfully next year, forcing a stronger economic adjustment; we expect sharply lower 2023 GDP growth in Poland (0.9%), Hungary (0.2%), and Turkiye (2.4%), compared with this year's strong outturns.
• Once the external environment improves, Central and Eastern European economies should regain their momentum, with GDP growth recovering to above 3% in 2024. We acknowledge high uncertainty regarding policy settings in Turkiye after parliamentary and presidential elections next year.
• Economic projections for oil exporters in the Gulf are still upbeat, while commodity-exporting countries on the African continent will likely have mixed fortunes where price declines for some exports offset benefits from increased demand for others.

44. Economic Outlook Emerging Markets Q1 2023: Hanging In There, But Growth Prospects Remain Tough, Nov. 29, 2022

• Emerging markets (EMs) have navigated better than expected so far this year through strong global crosswinds. Still, growth will weaken into next year as prospects for economic growth in the coming quarters remain difficult.
• S&P Global Ratings lowered its real GDP growth forecasts for EMs to 3.8% in 2023 (was 4.1%). The downward revision to growth comes from all EMs excluding China and Saudi Arabia, with most economies poised to expand below their longer-run trend rates. Forecasts for 2024 and 2025 remain broadly unchanged, averaging 4.3%.
• EM inflation appears to have passed the peak or is peaking soon in this cycle. Even as inflation is forecasted to ease in most EMs next year driven primarily by falls in food and fuel inflation, it's poised to remain above many EM central banks' respective targets in 2023.
• As such, monetary policy rates are likely to stay high for the time being. But the deceleration in inflation--coupled with a worsening growth outlook--could bring policy easing onto the agenda in several EMs (especially in Latin America) by the middle of next year.
• The long shadow of Russia-Ukraine conflict, the lingering pandemic, and a sharper central banks led tightening of financial conditions to quell inflation remain key downside risks for EMs

45. Which Emerging Markets Are Most Vulnerable To Rising Food And Energy Prices?, April 21, 2022

• On the external side, emerging economies are generally more vulnerable to higher energy prices than higher food prices.
• The most vulnerable emerging economies are significant net importers of both food and energy.
• Higher food prices are a bigger issue than higher energy prices for households.
• Some emerging economies in the Middle East and North Africa (MENA) region are vulnerable to food-supply disruptions.

46. Domestic Savings Won't Prop Up Central And Eastern European Economies In 2023, Feb. 2, 2023

• The boom in food and energy prices caused inflation to surge in Central and Eastern Europe (CEE) in 2022.
• High inflation shrank households' real incomes in 2022 and we expect inflationary pressures to persist until late 2023 at least.
• Amid declining real incomes, domestic savings have helped to counter the consequences of high inflation in 2022.
• Despite some previous favorable developments, we don't expect CEE domestic savings to support economic growth in 2023.

47. Central And Eastern Europe: Growth Freezes, Risks Mount, Nov. 10, 2022

• Worsening geopolitical and financial conditions have dented growth momentum in Central and Eastern Europe. A sharp growth slowdown is already underway as persistently high inflation is eroding consumer purchasing power, financial conditions tighten, and the impetus from reopening economies and pent-up demand fades.
• In our downside scenario, most CEE-6 economies would be in recession in 2023. This scenario assumes a complete cut-off of gas supplies from Russia, subsequent economic recession in Germany, and tighter global financing conditions, which would knock off 2.1 percentage points from our baseline 2023 forecast for regional 1.4% GDP growth.
• The scale of the shock triggered by the Russia-Ukraine war could lead us to revise some of our baseline macroeconomic and rating assumptions for CEE-6 sovereigns, which would weigh on our view of sovereign credit quality. We point out four key risks for CEE-6 sovereigns a sharp economic downturn amplified by recession in broader Europe, the constrained ability of CEE-6 governments to benefit from EU transfers, elevated fiscal pressures, and suboptimal monetary policy choices.

48. The Underbelly Of Germany’s Export Prowess, Sept. 7, 2022

• 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.
• Our analysis of Germany's supply chain has found that the country is about three times more exposed to a risk of deglobalization arising from China than Russia.
• We also determined that supply risks to Russia and China are different. Those regarding Russia are mostly related to backward linkages in low tech, that is, dependency to the country's oil and gas. Supply chain risks to China are mostly forward linkages--that is, German components integrated in Chinese productions--concentrated in high-tech and medium high-tech sectors.
• While Germany could diversify trading partners to reduce vulnerabilities in backward and forward supply trade linkages, innovation, and R&D - therefore investment - could help reduce unbalanced backward linkages, which often rely on hard-to-substitute commodities in the domestic production process.

49. Global Macro Update: Surprising Resilience Unlikely To Last Into 2023, Nov. 30, 2022

• Global activity has held up surprisingly well so far despite a torrid pace of policy rate hikes and consistently high geopolitical uncertainties. Recent outperformance will not last in our view. We see significant slowdowns ahead. Labor markets are key to determining the depth of the downturn.
• Getting inflation under control while minimizing damage to output remains the main macro policy challenge; the lagged effects of rate hikes will make assessing this difficult. Given the big inflation miss over the past two years, policymakers will err on the tough side.
• Our growth forecasts are generally higher for 2022 relative to our previous round, but broadly unchanged for 2023-2025. Inflation forecasts are higher and stickier. Risks are on the downside.
• 2023 will be a revelatory year. We will learn how much monetary tightening is needed to curb inflation, how deep any recession will be, and the early contours of the post COVID-economy. We suspect the post-COVID world will differ from the pre-COVID world across several dimensions.

Environmental, social and governance

50. Sustainable Bond Issuance Will Return To Growth In 2023, Feb. 7, 2023

• We believe in 2023, global GSSSB issuance will return to growth, reaching $900 billion-$1 trillion, nearing the record $1.06 trillion in 2021.
• Three factors could drive growth or drag it down. Broadly, these are policy initiatives, levels of investment in climate adaptation and resilience, and the ability of issuers to address concerns about the credibility of certain types of GSSSB debt.
• Green bonds will likely continue to dominate. However, we expect to see sustainability bonds become more prevalent.

Financial institutions

51. High Reliance On Russia Could Increase Economic Risk For Armenia's Banking System, May 23, 2022

• Following a recent review, S&P Global Ratings says that it is keeping its Banking Industry Country Risk Assessment (BICRA) of Armenia's banking sector in group '8'. Our BICRAs are on a scale of '1' to '10', with '1' denoting the lowest risk and '10' the highest.
• In our view, economic risk for Armenian banks could potentially rise, due to weakening economic prospects for Russia, Armenia's most important trading partner, as a result of the conflict that started when Russian troops entered Ukraine in February 2022.
• Our baseline assumption is that the most acute impact of the war on key commodity markets, supply chains, and global confidence would occur in the first and second quarters of this year, with a lingering but lesser impact after that. Given the highly fluid and uncertain situation, the consequences for Armenia will be varied. Therefore, we now view the economic risk trend for Armenian banks as negative rather than stable.

52. Asia-Pacific Banks And The Ukraine Crisis: Small Exposures But Secondary Impacts Could Bite, March 15, 2022

• Direct exposures to Russia of Asia-Pacific banks are small and are unlikely--by themselves--to have a broad-based impact on our ratings or outlooks on Asia-Pacific banks.
• Secondary impacts on the real economy and the corporate sector may eventually cause Asia-Pacific banks' asset quality to deteriorate.
• Economic risks, geopolitical risks, and negative event risks such as cyberattacks are meaningful and could yet hit Asia-Pacific bank ratings.

53. Banking Sector Outlook 2023: Central Asia And Caucasus Remain Resilient, Feb. 9, 2023

• We expect the banking sectors of Armenia, Azerbaijan, Georgia, Kazakhstan, and Uzbekistan to continue their post-pandemic recovery in 2023, supported by favorable economic growth prospects despite increased geopolitical tensions in the region.
• An influx of migrants, companies, and money transfers in 2022 boosted economic growth and strengthened banks' funding bases, although this impact will likely be temporary and its magnitude will vary by country.
• Still, weaker global economic prospects than expected, particularly in Europe, potentially volatile commodity prices, and supply chain disruptions might curb growth in markets dependent on commodity export revenue and erode some borrowers' creditworthiness, with a knock-on impact on the region's banks.
• Inflation, volatile currency exchange rates, and the need to refinance external funding remain material risks for the region's banking sectors.

54. Middle East And African Banks: Varied Exposure To Russia-Ukraine Conflict, April 4, 2022

• S&P Global Ratings expects rated banks across the Middle East and Africa to suffer little direct fallout from the Russia-Ukraine conflict due to their limited dealings with Russian and Ukrainian counterparties.
• The Turkish and Tunisian banking sectors are most likely to suffer from negative indirect effects, while we expect Saudi, United Arab Emirates, and South African banks will remain relatively insulated.
• The major indirect effects of the conflict will include:
• --Higher oil prices, which will bolster oil exporting economies and weigh on oil importing countries;
• --Higher food prices, leading to inflationary pressure and current account deficits; and
• --Increased investor risk aversion, which could increase vulnerability for banking systems with substantial net external debt.
• This report focuses on the few emerging markets where we have observed significant vulnerabilities, or where we have received specific investor queries relating to the conflict's effects.

55. Which Emerging Market Banking Systems Are Most Exposed To External Funding Stress And Why, June 13, 2022

• Major central banks are tightening monetary policy faster than initially expected, which is likely to make global liquidity scarcer and more expensive.
• Some emerging markets banking systems are exposed to this phenomena either directly through their own substantial net external debt or indirectly through exposure to corporates or sovereigns.
• Among the five banking systems we look at in this report, Turkey's and Tunisia's appear the most at risk.

56. The Russia-Ukraine Conflict: European Banks Can Manage The Economic Spillovers, For Now, April 21, 2022

• European banks can manage the economic spillovers from the Russia-Ukraine conflict under our base case that envisages business disruptions in certain corporate sectors and reduced but still positive economic growth in 2022.
• It's undoubtedly a trickier and more uncertain macroeconomic environment than we had envisaged at the start of 2022, and as a result we expect European banks will see lower loan and business growth, as well as a limited uptick in costs. But we do not see these effects as likely to significantly test our view of the creditworthiness of most European banks.
• The conflict has reshuffled and worsened our downside scenarios. European banks are not all equally vulnerable to these downside scenarios, so if they become more likely to play out, we would expect differentiated rating actions--either across national banking sectors or on individual banks.
• If downside risks were to materialize, we would also expect European governments and central banks to intervene to somewhat dampen the effect on the real economy and indirectly on banks.

57. German Banks In 2023: The Sector Is Well Placed To Handle Economic Challenges, Feb. 21, 2023

• Economic risk in Germany remains low by global standards. We revised our economic risk assessment for Germany to '2' from '1' (still among the strongest in the world), which is now in line with that of European countries such as Norway, Switzerland, Austria, and Finland. We see the economic risk trend as stable now, given our view that the resilience of the German economy provides a meaningful buffer against potential further economic downside.
• Germany's dependence on energy imports represents an economic vulnerability. The banking sector and economy have been spared from more severe scenarios due to a relatively mild winter curbing energy demand. Also, the government's efforts to reduce energy dependence on Russia and replace missing gas imports have prevented more severe economic fallout.
• The economic impact of global supply chain bottlenecks also remains a lingering risk. However, we have seen improvements in supply chains and sentiment since China terminated its zero-COVID policy in December 2022.
• We expect house prices to decrease only slightly. We forecast nominal house price declines of 2.0% and 1.0% in 2023 and 2024, respectively. This reflects inelastic and tight supply in housing, a strong labor market, and high household wealth in Germany, partly offsetting the negative effects from the sharp decline in mortgage business in Germany following interest rate hikes.
• Asset quality will weaken slightly. We expect that the German banking sector will see modest increases in credit losses. Germany's banks are bolstered by the economy's demonstrated ability to absorb large shocks.

58. Global Banks: Our Credit Loss Forecasts - Manageable Rise In Credit Losses As Our Base Case, Dec. 13, 2022

• Across the 83 banking systems that S&P Global Ratings covers, we expect credit losses will amount to around $2.1 trillion over the three years to end-2024.
• China's commercial banking system accounts for just more than one-half of this total, reflecting its sheer size in a global context. In terms of customer loans, the Chinese banking system is approximately the same size as the U.S., Japanese, German, and U.K. banking systems combined.
• A silver lining: Global banks enter 2023 with broadly healthy capital and solid balance sheets, and their net interest margins will continue to benefit from higher interest rates. This should provide comfortable headroom to absorb higher losses without depleting capital.

59. Global Bank Outlook 2023: Greater Divergence Ahead, Nov. 17, 2022

• The darkened economic outlook presents headwinds for banks' asset quality, business volumes, and financing conditions. Positively, earnings greatly benefit from the monetary policy tightening.
• Rating trends across the global banking sector will be tested in 2023. Our banks' net outlook ratio is likely to deteriorate from a 6% positive.
• The likelihood of economic recession in Europe and the U.S. has increased; inflation is at multi-decade highs in many countries; and the spillover from the Russia-Ukraine war continues.
• Strong bank balance sheets should buffer headwinds, with solid capitalization and sound asset quality.

60. Global Bank Country-By-Country Outlook 2023: Greater Divergence Ahead, Nov. 17, 2022

• Banks have cleaned up a large portion of their nonperforming exposures (NPEs) from the 2008 financial crisis, but progress will be more modest in 2023 and NPEs will remain much higher than for European peers.
• Protracted inflation, high private-sector debt, and lending concentrated in the cyclical tourism sector all pose lingering risks to banks' asset quality.
• In addition, Cyprus' links to Russia could threaten its economy and the banking sector

61. How The Russia-Ukraine Conflict May Affect Multilateral Lenders, June 16, 2022

• Multilateral lending institutions (MLIs) with significant exposure to Russia, Belarus, or Ukraine face asset-quality issues, alongside potential weakening of policy relevance and shareholder realignment, as the impact of Russia's military actions in Ukraine spreads across the region.
• Our stress tests on six such MLIs indicate pressure on the three smallest if many of their borrowers were to default, although this is unlikely since a large amount of loans are to state-owned companies and government-guaranteed projects.
• At this stage, we see a very low likelihood of MLIs facing sanctions or having operational difficulty in paying creditors.
• All six entities have robust liquidity but, for three of them, if the current restricted access to capital markets persists for an extended period, it could eventually erode that position.

62. How The Conflict In Ukraine Is Affecting Financial Institutions Ratings, March 4, 2022

• The Ukraine conflict and the imposition of sanctions potentially carries financial sector implications far beyond the battle zone.
• So far, we have taken negative rating actions on financial institutions in Russia, Ukraine, and Belarus, many of them linked to rating actions on the sovereigns and our view of the deteriorated operating environment.
• Four European banking groups have sizeable Russian and Ukrainian exposures, but we see this as more meaningful for some than others, and we anticipate that all will demonstrate resilience.
• Direct exposures for other banks in Europe, as well as globally, are limited.
• Nevertheless, we remain mindful of the potential for significant second order effects from the conflict, which could yet lead us to revise down our base case assumptions about the operating environment, most obviously in EMEA.

63. Financial Stability Risks Stemming From Sanctioned Russian Bank Subsidiaries In Kazakhstan Have Been Limited, July 7, 2022

• Financial stability risks stemming from sanctioned Russian banks' subsidiaries in Kazakhstan have been limited.
• Following the outbreak of the Russia-Ukraine conflict, the EU and the U.S. introduced wide-ranging sanctions against major Russian banks Sberbank, VTB Bank, and Alfa Bank. This increased scrutiny of these banks' significant operating subsidiaries in Kazakhstan. The effective suspension of operations and uncertainty regarding depositor confidence were major and systemic, since these Russian banks' subsidiaries represented about 14% of systemwide customer deposits as of Feb. 1, 2022. However, these Russian banks' Kazakhstan-based subsidiaries have since rapidly downsized their operations to about 2% of the systemwide deposit base.
• The Kazakh banking sector has absorbed the short-term effect of the shock amid a rapid realignment of market structure. At the same time, the banking sector's reshaped structure has further increased the larger banks' market concentration, which could make the competitive environment more challenging for smaller players.

64. Credit FAQ: The Significance Of Some Russian Banks Being Excluded From The SWIFT System, March 4, 2022

• On March 2, 2022, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) confirmed it will disconnect seven Russian banking groups from its financial messaging system on March 12, at the request of the EU and international partners. This system underpins the majority of international interbank payments.
• These seven banks are already subject to economic sanctions by the EU and other G7 countries. In combination, these measures deny or significantly diminish the access of the Russian banking system to the global financial system, markets, and infrastructure. At the same time, sanctions targeting the Central Bank of Russia's (CBR's) foreign exchange reserves are undermining its ability to act as a lender of last resort.
• We answer some questions about the SWIFT cutoff, the other sanctions, and their effect on the Russian banking system in this FAQ.

65. Cryptos Won't Blunt The Sting Of Sanctions On Russia, March 4, 2022

• In our view, cryptocurrencies are increasingly perceived in Russia as a store of value that can protect wealth against ruble devaluation and related asset deflation.
• The scale of crypto use is not broad enough to allow Russian entities to effectively evade financial isolation due to sanctions.
• We expect a pick-up in the pace of regulation on crypto.

66. U.S. Financial Institutions Ratings See Some Indirect Increased Risk From The Armed Conflict In Ukraine, March 17, 2022

• We believe the direct impact of the armed conflict in Ukraine will be limited for U.S. financial institutions, but the situation has increased uncertainty globally and could lead to indirect effects on the sector.
• The main risks to U.S. financial institutions are settlement and counterparty risk, as well as the asset quality impacts from increased volatility and inflation.
• Still, we do not expect the direct or indirect consequences of the armed conflict, on their own, to lead to immediate rating actions.

Infrastructure

67. Renewables Are The Best Way To Ensure Energy Security, Say Panelists, May 23, 2022

• Panelists at our recent Asia-Pacific conference discussed the "trilemma" of energy transition: (1) decarbonizing while (2) ensuring affordability and (3) promoting energy security.
• Nearly 60% of Asia-Pacific power generators are exposed to environmental risk factors, worth about US$500 billion of rated debt.
• Investors are increasingly assessing investment risks with an ESG lens and seek greater disclosures and transparency.

68. EMEA Utilities Outlook 2023: Germany And Austria | A Testing Year For Credit Quality, Jan. 27, 2023

• Germany and Austria will emerge from the winter with larger gas storage levels than expected, which should help reduce gas and power prices and risks in the region related to next winter, but we expect the market will remain volatile at least until 2024, requiring prudent liquidity management even though utilities are better prepared for a liquidity shock.
• We expect inframarginal power generation companies we rate can still capture higher power prices than historical averages despite the implementation of temporary windfall taxes, so such taxes should not impair credit quality.
• We expect utility companies to increase capital expenditure (capex), which is needed to reach the intermediate target of 100 grams of carbon dioxide (CO2) per megawatt hour (/MWh) by 2030, thereby speeding up the energy transition while supporting security of supply.
• Renewable power producers will fare better than other inframarginal power generators over the medium term, in our view, with low marginal costs strengthening their competitive advantage.
• Grid operators will remain key enablers of the energy transition as they roll out investments to connect new decentralized power generation to the grid, but likely with temporary cash flow mismatches as capex is funded at the current cost of capital while regulatory remuneration will only catch up with a lag.

69. Eastern European Utilities Handbook 2023 , Jan. 5, 2023

• We rate 16 utilities in the Central and Eastern Europe (CEE). This includes five regulated operators of power, gas, and water networks, eight integrated utilities, and two pure generation players.
• In 2023, we expect fixed-cost power generators and network operators with more supportive regulatory frameworks will continue to see earnings performance improve. The former will benefit from increasing profits thanks to low production costs, while the latter should be able to pass on cost increases in a timely manner to final customers.
• Meanwhile, companies with production shortfalls (or short in generation) will continue to suffer from earnings or liquidity events, in our view, absent government intervention.
• That said, we believe CEE governments will likely continue to support liquidity shortfalls for utilities, while using windfall taxes to curb excessive profits. We consider governments and regulatory frameworks in the region generally less supportive than those in Western Europe though and will closely monitor how governments support utilities in case of need.
• Utility companies' adjusted debt related to nuclear activities should drop as long-term yields increase, given the formula for calculating asset-retirement burdens. This could have notable impact in the larger Eastern European economies where nuclear makes up a large and increasing share of power generation.

70. Europe's LNG Focus Can Bring Pain As Well As Gain For Utilities, Nov. 9, 2022

• Europe's forced replacement of nearly 80% of Russian gas supply, mainly by buying liquefied natural gas (LNG), makes its gas balance tight, pricing dynamics riskier, and policymaking more complex, but can benefit utility companies that already have or plan to build LNG infrastructure.
• We estimate that Europe needs a massive amount of LNG--about 150 billion cubic meters (bcm) annually--through 2025, nearly 65% more than the 90 bcm it purchased in 2021; but its utilities face intense competition, especially from China, in a global sellers' market.
• They also face credit risks if LNG prices go way beyond our base case of $40 per mmBtu in 2023 and $25 thereafter, threatening earnings and liquidity, or if assets become stranded after 2030 as Europe fulfils its decarbonization ambitions.
• We also see new areas of risk for security of supply, given Europe's dispersed LNG buying from few global suppliers and supply chain bottlenecks that could hamper delivery to end users, particularly in southern Germany and central Europe.

71. What Europe's Energy Redesign Might Mean For Its Power And Gas Markets, Sept. 13, 2022

• The EU is considering several policy actions to address the energy crisis, including decoupling gas and other power prices and capping the price of EU gas imports or gas used for power generation. Mandatory demand-curbing measures, including on power, are also on the table.
• Additionally, to preserve financial system stability Europe is addressing the severe liquidity concerns of some power exchanges and market participants, with the Swedish, Finnish, and U.K. governments separately having announced liquidity facilities to solvent participants together worth over €80 billion.
• Meanwhile U.K. policy proposals aim to curb energy costs for households and businesses by capping the per unit cost. Further reform could come while incentivizing oil and gas production, possibly even fracking.
• We believe the success of these actions at helping exchange markets return to functioning as intended, reducing price volatility, and allowing utilities to hedge earnings for a bearable liquidity burden will ultimately depend on how swiftly they are implemented and how they work together.
• While government financing of measures appears feasible (including in the U.K.), the implementation will be complex in the very fragmented European power markets and take time, raising further pressure on affordability and demand destruction.

72. Nord Stream 1 Shutdown: Will Utilities And Markets Freeze This Winter?, Sept. 6, 2022

• The indefinite closure of the Nord Stream 1 pipeline adds to existing pressure on gas and power prices in Europe and highlights the already acute question as to who will bear the resulting massive financial burden.
• Despite unprecedented government intervention on markets and specific utilities, the inevitable redesign of the gas and power market will be complex and bears many risks for rated utilities this winter. Windfall taxes may also dent earnings upside for unhedged fixed-cost power generation.
• We believe liquidity risks for rated utilities are up considerably in this extreme price environment, which has triggered massive hedge collateral posting movements. However, European governments appear increasingly willing to support liquidity on energy exchanges and at domestic utilities.

73. The Dash For Gas Fuels Risks For European Utilities, Slows Energy Transition, June 29, 2022

• The Russia-Ukraine conflict is aggravating heavy, preexisting imbalances in European gas markets ahead of a crucial winter. Uncertain and costlier gas supplies are reducing sector visibility. High and volatile gas and power prices lessen affordability and are prompting government action. Plus, security of supply worries are leading to increased use of fossil fuels, notably coal, which may slow the energy transition.
• As a result, we see the sector as riskier, featuring increasingly divergent credit paths. Low-cost generators with high availability are increasingly capitalizing on high power prices, and regulated operations should continue to prove resilient. However, higher debt costs, government measures to support affordability, as well as higher interest rates and inflation could tighten ratings headroom.
• A gas bridge to make the energy transition is still needed, especially as Russian supplies drop before Europe can tackle the challenge of building renewable capacity, which will increasingly temper power prices in the last half of the decade.
• By the end of the decade, Europe's push to accelerate the energy transition could reshape power and gas markets. Policy responses aim at reconciling security of supply, affordability, reliability, and the acceptance and feasibility of accelerated renewables deployment. However, this combination of objectives may prove difficult to achieve.

74. How The Russia-Ukraine Conflict Affects European Infrastructure Companies, March 15, 2022

• S&P Global Ratings anticipates that the Russia-Ukraine conflict is likely to have secondary effects that may hurt infrastructure businesses in Europe, the Middle East, and Africa (EMEA), beyond those directly affected because they trade in Russia or Ukraine.
• We also consider that some infrastructure companies--most notably airports and seaports--have a degree of direct exposure to the region, for example, in terms of air traffic or sea freight volumes.
• The secondary effects derive from the economic fallout of the conflict, such as inflationary pressures, soaring commodity and energy prices, and potentially weaker consumer confidence.
• Weaker growth and capital market volatility may have a more severe and generalized impact on infrastructure companies' credit quality, depending on the headroom and liquidity position of each company. Hence, we will analyze the exact impact on each rated company on an individual basis.

75. Extremely High And Volatile Gas Prices Signal A Structural Shift In Europe's Energy Market, March 17, 2022

• Elevated and extremely volatile European gas prices reflect mounting risks related to gas supply from Russia, and Europe's strong political push to diversify away from Russian gas, on top of an already tight supply-demand situation before the Russia-Ukraine conflict.
• S&P Global Ratings believes this situation, alongside evolving regulation on the gas and energy sector, the EU's steps to secure alternative gas supplies or fuels, and efforts to redirect liquefied natural gas (LNG) cargoes could eventually reshape Europe's energy market.
• This year, we expect to see power prices reaching unprecedented levels, possibly well above €200 per megawatt hour (/MWh) in some major European markets, versus about €120/MWh on average for the largest markets in 2021.

76. Europe's Exit From Russian Gas: 10 Questions On Utilities, March 17, 2022

• Europe's proposal to slash Russian oil and gas imports in light of the Russia-Ukraine conflict will lead to even higher gas and power prices, increased risk of gas shortages, and, we believe, a faster decline of the gas utilities sector as consumers find alternatives.
• Increased political intervention in the energy market, possibly via state aid, profit clawbacks, and price caps, appears inevitable as governments seek to ensure that energy remains affordable.
• Further acceleration of power generation from renewables and renewable gases (biomethane and hydrogen) could boost investments, if supported by state funding, but we see major hurdles for Europe in delivering on those plans.
• European countries appear increasingly open to an alternative energy market design, which could be a game changer for the sector in the longer term.

77. From Lots To Lack: Liquefied Natural Gas' Wild Ride, Jan. 24, 2023

• The liquified natural gas (LNG) market continues to commoditize, with growing levels of spot and short-term trade and more LNG contracted on a free-on-board (FOB-- offtakers are responsible for shipping costs) basis rather than delivered ex-ship (DES).
• Portfolio players increasingly dominate the global market
• North American LNG is lifted FOB with no destination restrictions, making it attractive to portfolio players and utilities.
• As the market moves sharply into deficit through 2026, North American LNG is becoming a leader in supply and demand, reinforcing its position as one of three of the world's largest sources of LNG supply.
• North American (mostly U.S.) LNG supply accounted for 43% of the capacity that took final investment decisions (FID) from 2010-2019 and is forecast to account for about 25% of global supply in 2040.

Insurance

78. Global Insurance Markets: Inflation Bites, Nov. 30, 2022

• Inflation, and to some extent, competition, in key retail lines (motor and medical) should drag on insurers' underwriting performance in 2022-2023.
• Return on equity (ROE) could deviate from our forecasts, since investment results remain uncertain and may be volatile.
• The increase in interest rates by central banks to tackle inflation is causing mark-to-market losses. However, many insurers hold their fixed-income portfolios to maturity, so these unrealized losses are unlikely to fully crystallize.
• Reduced purchasing power due to the increased cost of living may slow premium growth, notably for life insurers. In contrast, many property/casualty (P/C) lines are mandatory, and P/C insurers are increasing premiums to adjust for inflation.
• For many life markets that are still exposed to traditional products with guarantees, the rising interest rate environment should ease the pressure on capital and reserve requirements.

79. Cyber Risk In A New Era: The Rocky Road To A Mature Cyber Insurance Market, July 26, 2022

• Cyber insurance is the fastest-growing subsector of the insurance market, though substantial price increases rather than underlying growth in the size or volume of contracts is responsible for much of the recent increase.
• A growing number of (re)insurers are hesitating to underwrite larger risks, and some have decreased their risk appetite, due to the increased frequency and severity of cyber attacks and greater systemic vulnerabilities.
• The need to continually reassess evolving risk exposures is a challenge for (re)insurers, and dynamic contract conditions are likely to prove an enduring characteristic of the market.
• Clear policies, with precise wording, are key to the sustainable development of the cyber insurance market, as highlighted by concerns about the contractual treatment of cyber warfare in the wake of the Russia-Ukraine conflict.
• A disciplined and targeted expansion into cyber insurance that meets policyholders' needs could support issuers' creditworthiness, enhance their reputations, and leave successful (re)insurers better prepared for the next growth opportunity.

80. Russia-Ukraine Conflict Adds To A Bumpy Start To 2022 For Global Reinsurers, March 31, 2022

• The Russia-Ukraine conflict will add uncertainty and exacerbate earnings volatility in global reinsurers' specialty lines, although their direct asset exposure is minimal.
• Our scenario analysis indicates that losses from specialty lines are likely to be an earnings event for most reinsurers, but could become a capital event for a few outliers. We believe global reinsurers will likely assume about one-half of the potential specialty insurance losses.
• Our sector outlook on the global reinsurance industry is negative, reflecting ongoing challenges to meet cost of capital, worsened by first-quarter natural catastrophe losses, the Russia-Ukraine conflict, and rising inflation.

81. Bulletin: Credit Quality Of Insurers Is Weathering The Geopolitical Storm, March 4, 2022

• For the many insurers headquartered outside Russia that have exposure to the country, their exposure is small enough and their capital strong enough for them to avoid a deterioration in credit quality. The same is true for insurers and reinsurers with no direct exposure to Russia, but we continue to assess the impact of macroeconomic and financial market volatility on balance sheets.
• It should be noted that insurers not headquartered in Russia have exposure to the country as well. We believe that for most of these insurers, asset and insurance liability exposure is less than 2% of total adjusted capital or below 1% of total assets and liabilities, or both. We believe the capital positions of European insurers are a key strength. Therefore, we do not expect invested asset volatility in Russia or local liabilities to lead to negative rating actions.
• Many global and regional reinsurers have exposure to Russia, as well as some industrial line writers. As of now, we believe global reinsurers' exposure is very limited.

82. Taiwan Life Insurers' Russia Exposures Look Manageable, Feb. 23, 2022

• Taiwan's life insurance sector's high allocation to foreign-currency investments includes bond investments in Russia. That makes the sector exposed to unfavorable volatilities from escalating geopolitical tensions between Russia and the Ukraine and West.
• However, we see the Russia investment exposure as manageable.

Leveraged finance

83. A Choppy Return For Corporate High-Yield Issuance On The German, Swiss, And Austrian Markets, Sept. 30, 2022

• Corporate high-yield issuance in Germany, Austria and Switzerland (DACH) is likely to be choppy over the second half of 2022, following an initial six months of thin activity in primary bond and loan markets that left total volumes about two-thirds below the same periods in 2020 and 2021.
• Sluggish primary markets and increased rates on refinanced debt are adding to pressures on issuers in DACH, which already dealing with strains on profitability and consumer demand due to inflation. These strains are reflected across Europe, where we expect the trailing 12-month speculative grade corporate default rate to reach 3% by June 2023, up from 1.1% in June 2022.
• S&P Global Ratings expects DACH speculative-grade issuers will remain an attractive target for leveraged buyouts (LBOs) due to the high proportion of companies with leading niche positions--especially in chemicals, health care, and capital goods companies with limited revenue exposure to China.
• LBO driven demand for financing should provide support for debt issuance once markets stabilize, possibly from 2023.

Metals and mining

84. S&P Global Ratings’ Metal Price Assumptions: Lower Prices And Higher Costs Start Squeezing Profits, Nov. 1, 2022

• We are revising some of our global metal price assumptions downward based on economic pressure and better clarity on global supply following earlier disruptions from Russia.
• Credit buffer is generally good in this sector, and most issuers can withstand further price pressure before testing our downside credit thresholds.
• Market conditions for metals and mining are mixed: Copper and aluminum are quickly approaching breakeven for high-cost producers, while thermal coal prices skyrocketed thanks to regional natural gas shortages.

Oil and gas

85. South And Southeast Asia Oil Nationals To See Revenue Boost As Europe Looks East For Energy Supply, March 6, 2022

• Europe is likely to look to Asia to bridge any potential supply gap from Russian imports for its energy supply. The result will be higher revenues for many national oil companies (NOCs) in South and Southeast Asia. Some of this will be offset by higher costs at NOCs' downstream operations.
• Given the integrated, diversified business models of many hydrocarbon companies in South and Southeast Asia, the impact on revenues and margins will vary. For example, some companies rely on fuel imports. Downstream refining activities and subsidized fuel distribution are also likely to suffer.
• Demand for liquified natural gas (LNG) will likely spike the most as a result of the sanctions on Russia. Given that the NOCs' sales volumes are secured under long-term contracts, many of which have destination clauses, it's unlikely that significant spare capacity can be immediately redirected-- keeping prices elevated in the near-term.
• Of the South and Southeast Asian NOCs that we rate, most derive 60%-70% of their EBITDA from exploration and production of hydrocarbons. Petronas has a sizable LNG portfolio, as one of the world's leading LNG players, with more than 20% of its product revenues coming from LNG sales.

86. China's Refiners Feel The Heat As Oil Nears US$130, March 7, 2022

• Chinese national oil companies (NOCs) are feeling the heat of tension in Europe. Their refining operations will take a hit as crude oil nears US$130 per barrel, as this may trigger discounts to the degree of cost pass through.
• While the upstream business of these companies will continue to gain from higher oil prices, special-gain levies or windfall taxes will take away some of this uplift.
• The credit profiles on the Chinese NOCs remain intact due to their balance sheet strength, the prospect for increased upstream profits, and our assumption that oil price will eventually normalize.

87. S&P Global Ratings Lowers 2023 European And U.S. Gas Price Assumptions On More Balanced Supply And Demand, Jan. 10, 2023

• S&P Global Ratings has significantly reduced its European Title Transfer Facility (TTF) and Henry Hub price assumptions for 2023. Our 2024 and 2025 TTF and Henry Hub assumptions and all our Brent and West Texas Intermediate crude oil and AECO natural gas price assumptions are unchanged.
• We now use a TTF assumption of $30 per million British thermal units (/mmBtu) for the rest of 2023--equivalent to about €100 per megawatt hour (/MWh)--down from $40/mmBtu. Our TTF price assumptions for 2024 and 2025 are unchanged at $25/mmBtu and $20/mmBtu respectively. The TTF 2023 price revision primarily reflects the steady, and above-expectation, underlying reduction in Europe's demand for natural gas, which we estimate exceeded 20% over August-December 2022. We expect much of this demand reduction, which was material even with normalized temperatures, to be sustainable.
• We now use a Henry Hub assumption of $4/mmBtu for the rest of 2023, down from $5.25/mmBtu. Our Henry Hub price assumptions for 2024 and 2025 are unchanged at $4.5/mmBtu and $2.75/mmBtu respectively. The revision to the 2023 price reflects the precipitous decline in the Hub futures curve, primarily due to unseasonable warm weather, increasing inventories and the Freeport liquefied natural gas (LNG) facility in Texas, U.S., still being offline. Among supporting factors, we note that Freeport is expected to be operational again in early February, inventories are slightly below five-year averages, and China's reopening could increase demand for U.S. LNG and related upstream gas production.

88. Wild Swings In Oil And Gas Prices: What Are The Drivers And Where Do We Go From Here?, March 24, 2022

• The climate for the global oil and natural gas markets can best be described as one of extreme nervousness, uncertainty, and volatility. A plethora of factors are fueling it, including concerns about supply, rising COVID cases in China, and low global inventory levels. Geopolitical events, which are always a factor in oil prices, are probably a well-above-average influence given the crisis in Ukraine.
• In this FAQ, S&P Global Ratings responds to frequently asked questions on the topic. The questions addressed are as follows: What is driving the volatility in oil and natural gas prices? What does the U.S. sanction of Russian crude mean for the U.S.? What about possible EU sanctions? What about Iranian/Venezuela production? What are some of the implications due to withdrawal by several major oil companies?

89. Japan's LNG Supply: On Solid Ground?, Jan. 6, 2023

• Economic headwinds and a correction in the property sector will continue to squeeze the credit profiles of Chinese local governments.
• LNG will trump renewables and nuclear power to hold key energy resource status and underpin Japan's energy supply until at least 2030.
• Supply headwinds should be offset by Japan's long-term agreements for LNG, as well as the geographic diversity of upstream projects and pricing formulas that keep market volatility at bay for now.
• Global gas shortages and increasing competition are big risks; adverse conditions could over the medium-term pressure Japan's electric and gas utilities' earnings, and consequently their stand-alone credit profiles (SACPs).

90. Qatar Could Gain As Europe Diversifies From Russian Gas, March 16, 2022

• In the short-term, QatarEnergy (QE) could divert only some of its liquefied natural gas (LNG) volumes to help bridge the gap if Russian gas imports to the EU and U.K. are significantly curtailed, or to support the EU's diversification efforts.
• Most of QE's gas contracts are long term, expiring after four years or more, with divertible shipments accounting for 10%-15% of its total LNG export volumes at best. We estimate diverted Qatari LNG could cover about 13% of Russian gas imports to the EU and U.K.
• We see modest monetary benefits to QE from diverting LNG to Europe from Asia, given relatively small volumes but currently higher spot prices for gas in Europe.
• Qatar could play an important role in European governments' plans to be independent of Russian oil and gas by 2030. Qatar is embarking on an investment program to significantly increase LNG production capacity to 126 million tons per year (mtpa), from 77 mtpa, by 2027.

Public finance

91. Central And Eastern European Local Governments Weather The War But Face Higher Spending, Oct. 27, 2022

• We believe elevated inflation will mean increased revenue for most local and regional governments (LRGs) in Central and Eastern Europe (CEE) this year, but expenditure will likely catch up by 2023.
• The Russia-Ukraine war could further dent economic growth in the region and LRG revenue bases in the medium term.
• Budgets could also be hit by additional fiscal costs of refugees, investment rigidities, and higher interest expenditure than we currently project over the short-to-medium term.
• In addition, higher energy prices may pose a risk, especially for LRGs with large energy-sensitive municipal companies.
• In our stress scenario, we found six of 11 rated CEE LRGs can absorb additional borrowing equivalent to about 30% of operating revenue over 2023-2024 without a material hit to credit quality.

Retail

92. European Retailers: Forced To Raise Prices While Wary Of Consumers Cutting Back Spending, June 9, 2022

• While rated retailers in Europe have endured and largely overcome the pandemic's hardships, they continue to face supply chain constraints and disruption, and are forced to pass on higher input and operating costs to consumers.
• The first quarter of 2022 and year-end 2021 results from European retailers show a sound operating performance on the back of strong consumer demand--even amid rising prices--that is largely supported by household savings.
• At the same time, deteriorating global macroeconomic conditions, heightened geopolitical uncertainty, and persistent inflation affecting essentials such as fuel, energy, and food, and rising interest rates have begun to hit lower- and middle-income households and consumer confidence.
• We expect retailers and restaurants will experience margin pressure and increased volatility in their top lines over the next few quarters as consumers gradually cut back on discretionary spending and become more price conscious in the face of falling real incomes.

Sovereigns

93. EMEA Emerging Markets Sovereign Rating Trends 2023: Through A Glass Darkly, Jan. 26, 2023

• 2022 saw the most sovereign defaults (four) in emerging markets (EM) EMEA this century.
• Including Russia, our GDP-weighted average EM EMEA foreign currency sovereign rating would have declined by nearly two notches during 2022, after Russia defaulted by using local currency to service its commercial foreign currency obligations on April 4, 2022.
• At the beginning of 2023, the balance of outlooks on the 55 EM EMEA sovereigns we rate remains negative by a factor of 2 to 1, barely changed from end-2021.
• The external environment however is notably improving as easing global inflation, a weaker dollar, and China's reopening are all supporting a (selective) return of portfolio capital inflows into EM EMEA assets.
• Despite this relief, EM EMEA's macroeconomic fundamentals remain strained. There is more sovereign debt today than two years ago, and it costs more to service. The deceleration in inflation is uneven. Finally, a series of high-stake EMEA elections is scheduled for this year with major implications for debt sustainability and growth.

94. CEE And CIS Countries Turn Away From Russia, May 23, 2022

• Although the Russia-Ukraine conflict has caused a marked shift to the economic outlook in Central and Eastern Europe (CEE) and the Commonwealth of Independent States (CIS) region, sovereign ratings in these areas have so far remained largely resilient.
• War is inherently unpredictable, but our baseline expectation is that the conflict will not expand to include any NATO members.
• Direct trade and financial linkages between CEE/CIS countries and Russia and Ukraine are often limited. The most important direct linkages that exist are related to energy imports from Russia and financial ties from remittance flows.
• Second-round effects, such as the economic slowdown in other trading partners, or rising energy and food prices, will have a similar effect on sovereigns in the region as they do on other sovereigns globally.

95. Central and Eastern Europe Sovereign Rating Outlook 2023: The Top-Five Risks, Feb. 6, 2023

• The Russia-Ukraine conflict will continue to weigh on CEE sovereigns' growth, balance of payments, fiscal and inflation outlooks in 2023.
• Strong macroeconomic fundamentals before the war allowed the region to absorb the immediate war-induced negative effects, but sovereign credit pressure is building up.
• Despite a somewhat improving external environment early this year, four out of the 11 rated CEE sovereigns carry a negative rating outlook.
• Factors that could undermine CEE sovereign credit quality in 2023 include a sharper economic downturn; disruptions in EU transfers; elevated fiscal deficits; balance of payments pressures; and monetary policy missteps.

96. European Developed Markets Sovereign Rating Trends 2023: Soft Landing, Hard Constraints, Jan. 30, 2023

• The second-round effects of the Russia-Ukraine war on developed European economies' balance of payments, fiscal positions, and inflation rates led us to introduce seven negative outlooks on developed European sovereigns last year. We have one on positive outlook: the Republic of Ireland.
• Costly interventions to mitigate the drain on growth and confidence from the pandemic and the war have consumed most of European sovereigns' remaining monetary and fiscal flexibility.
• Fortunately, European developed sovereign debt profiles are long-dated enough to prolong the convergence of their average cost of total debt toward market rates, while floating rate and/or inflation indexed debt is fairly modest except in the U.K. (26%) and Italy (11%).
• At the same time, the recent easing of natural gas prices, and headline inflation, amid signs of resilient labor markets and demand, suggest that most euro area economies will avoid a recession this year.
• China's reopening will also likely support euro area export growth, while the 13% appreciation of the euro versus the dollar should help anchor disinflation and smooth the ECB's interest rate path after a pair of 50 basis point rate hikes in February and March.

97. CEE Cities Are Withstanding Russia-Ukraine War Risks, At Least For Now, May 30, 2022

• Rated cities in Central and Eastern Europe (CEE) face numerous challenges as a consequence of the ongoing Russian invasion of Ukraine.
• Beyond the broader effects of higher inflation and lower GDP growth, they are vulnerable to peculiarities of their economies, their locations, and relationships with municipal companies. Much depends on their energy exposure and mix.
• We believe that, for now, the CEE cities we rate have sufficient buffers and flexibility to mitigate arising financial costs, but the overall credit impact will depend on the duration and severity of the conflict.

98. Oiling The Economy: EU National Strategic Oil Reserve Agencies’ Actions Reflect Their Central Role For Governments, March 22, 2022

• The sale of oil by EU strategic reserve managers illustrates that these entities are fulfilling their critical role for their states. However, we don't believe this will have a meaningful impact on their financial positions.
• On March 1, the member countries of the governing board of the International Energy Agency (IEA) agreed to release 62.7 million barrels of oil from their emergency reserves to soften the shock to oil prices of the conflict in Ukraine.
• Given the persistent oil price pressures, we believe further barrels could be released from the strategic reserves. This may include some held directly by the national strategic oil reserve managers, where they initially relied on private oil operators.
• We view the current and any further potential policy action as fully aligned with the agencies' mandates and evidence of the critical role they play for, and their integral link with their respective governments.

99. Global Sovereign Rating Trends 2023: We’re Not Over The Hump Yet, Jan. 26, 2023

• After two years of recovery and expansion, we expect the world economy to slow down markedly, though the reopening of China could give a boost to our outlook.
• Rising global interest rates will likely remain high through 2024, posing more risks for sovereigns heavily reliant on external funding and those with large debt stocks.
• Geopolitical uncertainty, the ongoing war in Ukraine, and a polarized social context present ongoing challenges for the global economy.
• While the majority of our sovereign ratings have a stable outlook, overall creditworthiness continues to deteriorate, with more than 10% of our portfolio starting 2023 with negative outlooks.

100. Introduction To Supranationals Special Edition 2022, Oct. 11, 2022

• Lending is expected to remain high for multilateral lending institutions as they are called on to exercise their countercyclical role in a recessionary environment.
• MLIs paid out $196 billion in 2021, down from $210 billion in 2020 but up significantly from $156 billion in 2019.
• Capital adequacy assessments are largely unchanged. The proportion of MLIs with the highest capital adequacy assessment rose to 65% from 59% as of September 2022.

101. Take A Hike 2022: Which Sovereigns Are Best And Worst Placed To Handle A Rise In Interest Rates, June 22, 2022

• The Russia-Ukraine war, energy price spikes, and de-globalization are weighing on global productivity trends, perpetuating higher inflation, and increasing sovereigns' vulnerability to rate shocks.
• Under our interest rate shock scenarios, the first-order effects of rising rates look to be fiscally challenging for a minority of developed market (DM) sovereigns and at least six out of 19 emerging market (EM) sovereigns.
• The average debt maturity of the sovereigns (both EM and DM) in our survey is just over seven years, implying, for most, a gradual rather than immediate pass-through of higher market rates into the average effective rate central governments pay on total debt.
• For those EMs with annual gross refinancing needs above 10% of GDP and with rising cost of new debt (Brazil, Hungary, Ghana, Egypt, and Kenya) the uncertainty and direction of the Federal Reserve's rate policy will remain a key risk through to the end of 2022.
• Several of the most credible EM central banks (BCBrazil, Banxico, SARB) are arguably ahead of their DM peers in the monetary tightening cycle, reducing the probability that these sovereigns will suffer an additional rate shock.

102. The Global Food Shock Will Last Years, Not Months, June 1, 2022

• Rising food prices and diminishing supplies will last through 2024 and possibly beyond, in our view.
• Fertilizer shortages, export controls, disrupted global trade, and escalating fuel and transport costs will all exert upward pressure on the cost of staples.
• Our analysis shows low and low-to-middle income countries in Central Asia, the Middle East, Africa, and the Caucasus could be worst hit by the first-round impact.
• The food shock will drag on GDP growth, fiscal performance, and social stability, and could lead to rating actions, depending on the response by governments and international organizations.

Structured finance

103. A Deal-By-Deal Look Behind The Aircraft ABS Rating Actions As Of June 13, 2022, June 13, 2022

• We arrived at one or more of the credit ratings in this article by deviating from S&P Global Ratings' published criteria.
• Earlier today, S&P Global Ratings took various rating actions on 28 ratings from seven aircraft ABS transactions that were placed on CreditWatch with negative implications on March 15, 2022, due to the Russia-Ukraine conflict (see "Various Actions Taken On 28 Ratings From Seven Aircraft ABS Transactions; Off CreditWatch Negative," published June 13, 2022). We are providing additional details on those rating actions on a transaction-by-transaction basis.

Transportation

104. Rated APAC Transportation Lessors To Withstand Russia-Ukraine Fallout, March 4, 2022

• Transportation leasing companies in the Asia-Pacific that we rate should be able to withstand operational disruptions caused by the escalating Russia-Ukraine conflict.
• This is because most of them have minimal direct exposure to the affected area. Since most are also globally diversified, we believe they can redirect their assets to other regions.
• The second-order impact from the escalation could affect some players more than others.

105. Leased Aircraft Stranded In Russia: The Focus Turns To Insurance, March 22, 2022

• Aircraft leasing companies have mostly been blocked by the Russian government from repossessing planes leased to Russian airlines. The situation remains unclear and is evolving, but it appears that the lessors' best hope for compensation may come from claims under their insurance policies.
• We understand there are several layers of insurance protection against potential loss due to confiscation or similar situations that make it impossible to repossess a plane. The potentially most consequential coverage is provided by contingency policies on an aircraft lessor's entire fleet of planes. Those policies may limit the amounts insured and basis for claims, but could provide meaningful recovery.
• We have not taken any rating actions on aircraft leasing companies, though we did place our ratings on seven aircraft-backed debt securitizations on CreditWatch.

106. Global Shipping 2023: Containerships And Tankers Part Ways, Feb. 7, 2023

• Container liners' significant capacity withdrawals should help freight rates stop falling over 2023-2024, allowing shipping companies to cover recent operating cost inflation.
• Exceptional free cash flows in 2021-2022 enabled container shipping companies to slash debt and secure ample financial headroom to cope with lower freight rates.
• Oil shipping has entered a bullish cycle due to a surge in ton mile demand and the lowest new tanker orderbook in more than 20 years, while dry-bulk shipping's charter rates are unlikely to improve before late 2023.
• New emission regulations in 2023 and a preliminary deal to include shipping in the EU's Emissions Trading System from 2024 mark an acceleration in decarbonization efforts that will weigh on ship owners and operators.

107. Aircraft Lessors Hit By Western Sanctions On Russia, March 1, 2022

• The Russia-Ukraine military conflict and the financial sanctions imposed on Russia by the EU, U.S., and certain other countries, will directly affect rated aircraft lessors. The sanctions prohibit providing aircraft and aircraft parts to Russia, and this also applies to aircraft leases. This prohibition takes effect March 28.
• Several lessors have disclosed their exposure to Russia: AerCap Holdings N.V., the world's largest aircraft leasing company, stated that about 5% of its aircraft (measured by book value) are on lease to Russian airlines. We expect that the exposure of most other rated aircraft lessors will also be in the single-digit percent area. The highest exposure disclosed thus far is SMBC Aviation Capital, at 10%, but the aircraft are mostly new technology narrowbody planes, currently the easiest to place with new airline lessees.
• We believe that aircraft leases have provisions that allow a leasing company to terminate a lease if forced to do so by government actions. The actual repossession of the hundreds of aircraft affected will be a major logistical undertaking, but our understanding is that prohibitions on Russian planes entering the air space of certain other countries either would not apply to repossession flights or could be circumvented by flying to other destinations outside Russia.
• More broadly, the run-up in oil (and thus jet fuel) prices will hurt airlines throughout the world, including those outside Russia.

Chart 1

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