Credit conditions around the world are weakening with the increasing volatility in global markets, the ratings company Standard & Poor's (S&P) said late on Tuesday. The reasons it cited for current concerns about global growth are volatility in financial markets, China's slowing growth and concerns about restabilization efforts, weak commodity prices, and funding difficulties.
S&P evaluated macroeconomic conditions and financial trends that could have a negative impact on credit quality in North America, Europe, Asia-Pacific and Latin America; with the conclusion that "credit conditions are generally less favorable for all regions." In North America, credit conditions are less favorable in the U.S. and Canada this year compared to 2015. Although the economic fundamentals remain resilient in the U.S. with the slower-than-anticipated pace of the Federal Reserve's interest rate hikes, Canada struggles with low oil and commodity prices.
For Europe, the slowdown in GDP growth continues to cause concern. But S&P believes trade within the EU is likely to increase in 2016. There are still questions about the U.K.'s possible exit from the EU, which could trigger a period of economic and financial uncertainty. "The Bank of England would be ready to defend the pound sterling. The government has tools in its bag as well," said S&P. The financial services company warned that European banks could adopt bolder behaviors to seek higher returns by extending riskier loans or investing in riskier assets. Fears about China's ability to rebalance its economy dominates markets in the Asia-Pacific region.
S&P emphasized that more economic reforms in China are needed, and added that financial and economic risks to the country's "creditworthiness" are gradually increasing. "Over the next five years, China will show only modest progress in economic rebalancing and credit growth deceleration. In addition to China, we regard the near-term negative momentum in Asia-Pacific credit quality as likely to continue in terms of downgrades," explained S&P.S&P expects a modest recovery in the region in 2017, as commodity prices, especially oil, begin to gradually rise along with external demand.