Country Risk Annual Report 2024

Agencies’ ratings have remained relatively stable during 2023. Changes have been mostly positive in peripheral Europe, while US and France were downgraded by Fitch. The rating cycle has been mostly negative for Emerging Economies (EE), mainly due to specific idiosyncratic vulnerabilities.

Key points

• Key points:
• Macroeconomic vulnerabilities have worsened across the board given the persistence of high inflation, the consecutive negative shocks to economic activity and the lower growth levels after COVID-recovery effects have vanished. Government balances and fiscal vulnerabilities have worsened overall in 2023 following the improvement in 2022, while public leverage deteriorated further and still constitutes one of the main risks across both Advanced Economies (AE) and Emerging Economies (EE.)
• On the private sector side, debt gaps levels (outstanding debt vs. estimated equilibrium) have decreased further in 2023 due to higher inflation and higher nominal GDP levels, but still remain elevated in several AE and China.
• Housing prices corrected somewhat during the first months of the 2023, but they have remained rather stable more recently. The highest disequilibrium levels continue to be in northern Europe, Canada, Turkey, China and Hong Kong.
• The regional banking crisis in the US coincided with a high probability indicated by our EWS. However, since it was a crisis more associated with liquidity mismanagement rather than excess leverage, its overall impact was contained. The high leverage and the real estate crisis in China keeps it under a warning.
• We present two special topics: 1. Stochastic projections of ratings, sovereign spreads and fiscal stress and 2. The impact of geopolitical fragmentation on global trade.

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