Moody’s: 2018 Sovereign Creditworthiness Outlook Is Stable

Sovereign creditworthiness has a stable outlook for 2018, according to Moody’s Investors Service. The “healthy growth and synchronized global economic expansion of 2017 [is] likely to continue into 2018,” said the ratings agency in a release.

Moody’s rated 137 sovereigns in its most recent 2018 outlook. Nearly three-fourths of them have a stable outlook, while 10% have a positive outlook and 22 sovereigns have a negative one. There were 35 negative outlooks a year ago.

"The macroeconomic environment for sovereigns is more favorable than it was a year ago," said Moody’s Managing Director of Global Sovereigns Alastair Wilson. "Moody's expects global GDP growth in 2018 to remain over 3% in 2018, similar to 2017. That benign economic backdrop allows governments a longer window in which to carry out economic and fiscal reforms."

Despite a favorable global outlook, Moody’s cites several challenges that prevent “a greater improvement in global credit conditions,” according to the report. Among the issues are political uncertainty and social tensions. This problem can be seen in Brazil, South Africa and Turkey, noted Moody’s. “Overall, slow progress on reforms leaves many sovereigns more vulnerable to a deterioration in their credit profiles in the event of a shock.”

Public debt levels are also a cause for concern, but Moody’s predicts almost half of the sovereigns’ debt burdens will stay within one percent of current levels. "While benign economic conditions lower the risk posed by high debt levels, few sovereigns have much, if any, fiscal space to respond to shocks," explained Wilson. Heightened geopolitical risk is the third challenge listed by Moody’s, which could “potentially undermine the stable outlook for sovereign credit.” Among the specific challenges were U.S. protectionism, a potential military conflict in Korea and tensions in Spain.

– Michael Miller, editorial associate

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