December 16, 2014 / 9:12 AM / 5 years ago

Fitch Sovereign Outlook: EM Ratings Face Pressures as Developed Markets' Ratings Stabilise

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 2015 Outlook: Sovereigns here NEW YORK/LONDON, December 16 (Fitch) The outlook for sovereign creditworthiness in 2015 is broadly stable, notwithstanding the myriad challenges facing the global economy, says Fitch Ratings in its 2015 Outlook: Sovereigns report, published today. Positive and Negative Outlooks on global sovereign ratings are more evenly balanced than they were at end-2013, when there were twice as many Negative as Positive Outlooks. Negative Outlooks are now concentrated in emerging markets, and partly reflect the risks posed by lower oil prices and the prospect of higher US interest rates. Outlooks in the eurozone are largely Stable, although risks remain. Global growth will pick up some pace in 2015, but Fitch's view on the economic outlook has weakened since September, and risks remain skewed to the downside. The uptick in growth will be driven by a buoyant US economy. The eurozone will eke out improved but still weak growth in 2015. Japan will also grow slightly faster. Emerging markets growth will be little changed from 2014. Among the bigger economies, we expect China to slow, Russia to enter recession and Brazil to post a sluggish recovery. The balance of Outlooks in the eurozone points to a mild improvement in credit quality. Crisis-hit eurozone countries have started to recover and rebalance. However, slow nominal GDP growth and fiscal budget deficits will make it hard to reduce public debt/GDP, posing risks to ratings. Fitch's base case is that a sovereign bond QE programme is looking increasingly likely absent an unexpected pick-up in growth and inflation in early 2015.. Elections in 2015 pose risks to the policy direction in Spain, Portugal and Greece. Emerging markets, especially those dependent on commodities exports, will have a harder time improving fundamentals sufficiently to justify upgrades, and some ratings could be at risk of downgrades. In view of the steep fall in oil prices since mid-2014, lower-rated emerging-market oil exporters such as Venezuela, Nigeria and Bahrain are particularly exposed. More highly rated oil exporters have buffers and can afford countercyclical policy. Conversely, lower oil prices will benefit consumption in developed markets, hold down headline inflation, and ease external pressures in large energy importers such as Turkey and India. There are other exceptions in emerging markets, where reform has boosted growth or lowered vulnerability to crises. The US economy is recovering, adding to global demand but bringing closer the first rise in interest rates and leading to a strengthening dollar. With inflation below target, Fitch expects a gradual tightening starting in mid-2015, with the target Fed Funds rate reaching 2% by end-2016. A quicker or steeper pace of tightening would affect those emerging markets that depend most heavily on portfolio capital to finance current account deficits and those where the government or private sector are prolific external borrowers. China is entering a period of structural adjustment after years of investment-fuelled growth. This will manifest itself in slower real GDP growth in both China and its trading partners, including exporters of non-oil commodities in emerging markets. The resolution of the economy's debt problem will be crucial in determining the path for the ratings. A sufficiently large migration of debt onto the sovereign balance sheet from the broader economy could trigger a move. In the majority of cases, Fitch sees rises in government debt, or an inability to put public debt on a sustainable path, as the biggest risks to ratings. Idiosyncratic factors dominate in the case of countries such as Russia and Ukraine. The full report ' 2015 Outlook: Sovereigns' is available at or by clicking the link above. Contact: Charles Seville Director +1 212 908 0277 Fitch Ratings, Inc. 33 Whitehall Street New York NY 10004 Douglas Renwick Senior Director +44 20 3530 1045 Andrew Colquhoun Senior Director +852 2263 9938 Paul Rawkins Senior Director +44 20 3530 1046 Richard Fox Senior Director +44 20 3530 1444 Shelly Shetty Senior Director +1 212 908 0324 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email:; Rebecca O'Neill, London, Tel: +44 203 530 1697, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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