Credit outlook turns negative for 2022: Moody's

Chennai: Credit rating agency Moody's Investors Service on Thursday said the outlook for global credit conditions this year has turned more negative amid slower global growth, rising borrowing costs, surging prices for energy and commodities, supply-chain disruption and increased financial market volatility.

"The surge in energy and food costs spurred by the invasion of Ukraine is weakening the purchasing power of households, raising input costs for companies and dampening investor sentiment," said Elena H Duggar, Managing Director-Credit Strategy at Moody's.

"Among sovereign debt issuers, debt sustainability will be especially challenging for many frontier market sovereigns as their borrowing costs climb while their economies still have not fully recovered from the pandemic crisis," Duggar added. Still, credit fundamentals remain generally healthy for higher-rated debt issuers, as credit metrics recovered in 2021 and as liquidity remains strong overall.

However, for speculative grade issuers with low free cash flow and a high portion of floating-rate debt, debt affordability, liquidity and refinancing risks are rising.

As central banks start to raise interest rates in response to high inflation, financial market conditions are tightening across continents, Moody's said.

Currently, financial conditions across the US, the UK, euro area and emerging markets were less favorable than historical averages. Financial conditions will continue to tighten as interest rates climb, the credit rating agency said.