S&P Global – Global Credit Outlook, 2024

The global COVID-19 pandemic has created an environment of rapid change, forcing financial market participants to adapt their strategies. Previously safe assumptions about monetary policy and inflation are no longer valid, as ultra-accommodative measures and low inflation are no longer expected to be the norm. While strong employment levels and favorable fiscal conditions will continue to support resilient credits, weaker corporate and government issuers are expected to experience credit deterioration and defaults in 2024. Borrowers across different asset classes will need to adjust to tighter financing conditions and slower economic growth. Although long-term yields are likely to peak in mid-2024, financing conditions will remain tight in real terms throughout the year. The amount of speculative-grade debt that matures in 2025 increases significantly, making 2024 a crucial year. Defaults are projected to rise to 5% in the U.S. and 3.75% in Europe, surpassing long-term historical trends. Credit deterioration is expected to be most prominent among lower-rated issuers, particularly in sectors dependent on consumer spending. However, investment-grade credits should generally remain resilient, except for the real estate sector which may experience margin compression. Several risks could disrupt these expectations and further worsen credit conditions, including persistent tight financing conditions due to ongoing inflation, a sharper-than-expected global economic slowdown, rising input-cost inflation and high energy prices squeezing corporate profits, vulnerable commercial real estate, and political tensions exacerbating the situation. Looking forward, geopolitical risks, the need for rapid decarbonization to address climate-related risks, and advancements in technology will increasingly influence the future of credit.