As of June, number of companies most at risk of losing their investment-grade ratings, potential fallen angels, in Asia, excluding Japan and Australia, climbed to 21 from 8 at the end of 2019, due to lower earnings and cash flow caused by the global coronavirus shock - Photo: Privacy

JAKARTA (TheInsiderStories) – The outlook for sovereign creditworthiness in 2019 is stable, balancing the global economy’s continued, but slowing growth momentum against rising uncertainty over longer-term economic and financial stability, Moody’s Investors Service said in a report on Tuesday (06/11).

Although a number of risks could affect credit conditions over the next 12 to 18 months, three-quarters of the 138 sovereigns that Moody’s rates currently have a stable outlook and 15 hold a positive outlook. Nineteen sovereigns have a negative outlook, compared to 22 a year ago.

“Our stable outlook for sovereign ratings in 2019 balances the benefits of continued global growth against emerging domestic and geopolitical risks,” said Alastair Wilson, Moody’s Managing Director — Global Sovereign Risk.

He added, “Despite the stable outlook overall, we are more mindful than in previous years of the potential for unforeseen shocks to disrupt economic and financial stability over the next 12-18 months.”

Moody’s expects G-20 growth to peak in 2018 at 3.3 percent before slowing to 2.9 percent in 2019. For advanced economies in the G-20, Moody’s believes growth will fall to 1.9 percent in 2019 from 2.3 percent in 2018, a pattern that is mirrored in key economies, including the US and Germany.

The picture in G-20 emerging markets is more varied: their growth in 2019 will be meaningfully slower in 2019 than in 2018, at around 4.6 percent against 5.0 percent in 2018.

Slowing growth means that the window for global sovereigns to address longstanding credit challenges – including high levels of public and private debt, as well as longer-term trends related to ageing and inequality – is closing.

High debt, falling growth and rising rates expose sovereigns to the risk of shocks that undermine debt affordability and sustainability. A number of emerging and frontier markets are particularly exposed to tightening global financial conditions and rising US trade protectionism.

Around the world, the longer-run credit trajectory for sovereigns will depend on the success of reform efforts that address these vulnerabilities.

As in previous years, the potential for disruptive domestic or
geopolitical events poses the greatest tail risk. Geopolitical risks
could have implications beyond a particular country’s economic and fiscal fundamentals and affect cross-border capital flows and thus funding conditions for many sovereigns.

Geopolitical risk is a broad category that encompasses US trade and foreign policy which poses an increasingly far-reaching threat to global confidence and growth; conflict on the Korean peninsula; regional conflict in the Middle East; and ostensibly domestic political events, including Brexit and recent events in Italy.