A ratings downgrade is not the last straw for some sovereigns, however, it is not an easy recovery for some. Fitch Ratings reviewed 37 sovereign rating crises over the last 20 years and found it takes “an average [of] two years to reach the ratings trough and [they] have a high likelihood of suffering further downgrades.”
The analyzed sovereigns had at least three ratings downgrades within three years, and the average downgrade was nearly six levels. The most affected country was Greece, which saw its first downgrade in 2009. It had a total of 14, while Korea and Cyprus each saw 12 downgrades. Seven countries hit rock bottom, or the trough, in the year of the first downgrade. San Marino had the longest cycle from 2009 to 2017.
Despite the major setbacks, countries can recuperate. All sovereigns that saw the crisis start before 2008 have recovered at least one rating, and 10 have fully recovered. Korea had the strongest rebound within 10 years of the crisis, recovering all but one ratings notch. In addition, Uruguay and Russia have had improved ratings.
Roughly two-thirds of the sovereigns to see a ratings downgrade since 2007 have had at least one upgrade. Iceland, Latvia and Cyprus have been among the top performers. Iceland, Greece, Spain, Portugal and Cyprus are also expected to have further upgrades since they are on Positive Outlook.
-Michael Miller, editorial associate