Jan 15 - In its six-monthly The Credit Outlook report, Fitch Ratings says that the eurozone
crisis and US fiscal and debt challenges will drive the global credit outlook this year.
While the Outlook on seven of the 17 eurozone member countries remains Negative, the ECB's
"Outright Monetary Transactions" (OMT) programme in early September effectively addressed
near-term liquidity risks for troubled eurozone sovereigns, buying time for the necessary but
painful adjustments required to secure solvency. However, notwithstanding some progress on
banking union at December's EU summit, significant challenges still confront policy-makers, both
in terms of moving towards greater fiscal and financial risk-sharing and in breaking the
negative feedback loop between sovereigns and their banking systems. Policy complacency remains
a risk for 2013.
The extended and unresolved US fiscal and debt ceiling negotiations will also be key to
global risk appetite. The fiscal cliff has been avoided but difficult decisions have been
deferred. The decisions on spending will now be taken concurrently with negotiations on the
raising of the statutory debt ceiling which was reached on 31 December, with extraordinary
measures expected to last until the end of February. Failure to reach agreement on raising the
debt ceiling in a timely manner would undermine confidence in the United States as a reliable
borrower and prompt a review of its 'AAA' rating.
Fitch expects the weak operating environment for banks to continue. Bank credit weakness is
most pronounced in the eurozone with a weak operating environment and continued sovereign
challenges. The US situation is more stable, but profit pressures raise concern on execution of
growth and expansion strategies. Support remains a key factor for 2013, but Fitch expects this
to wane with developments of a banking union and resolution regimes.
The proportion of ratings with a Negative Outlook or on Rating Watch Negative remains high
across many sectors, primarily driven by the unresolved eurozone crisis. The cross-sector
shrinkage of the universe of highest grade ratings ('AAA' and 'AA'), which has occurred in the
years since the start of the financial crisis, was arrested with little change in this group in
H212. However, only 23% of sovereigns, 7% of financial institutions and 2% or corporates were at
this rating level as at end-2012.
'The Credit Outlook' report provides an overview of Fitch's outlook across all rated sectors
and regions, identifying the main macro factors that will drive credit trends over the next
12-24 months. It is available at www.fitchratings.com or by clicking on the link below.
Link to Fitch Ratings' Report: The Credit Outlook