S & P says global credit conditions improving, as risks shift to Emerging Markets

Standard & Poor’s Ratings Services recently published its quarterly updates on credit conditions in North America, the Asia-Pacific region, Latin America, and Europe, providing their opinion on the evolution of macroeconomic conditions and broad financial trends that could affect credit quality.

According to S& P global credit conditions are mixed, as the global economic recovery stays on track and some of its more pernicious risks–those related to U.S. fiscal policy and the euro zone–have generally receded.

“Still, global risks haven’t disappeared entirely, but have instead tilted more toward the emerging markets,” S & P said in the report.

“We view the top global risks to be geopolitical developments that could result in financial turmoil or economic shock, such as an escalation of the Ukraine crisis, unexpected disruption in China’s gradual rebalancing efforts, stemming from financial sector risks, and a disorderly exit from quantitative easing and impact of Fed normalization of interest rates, particularly on emerging markets.”

For the U.S., S & P says credit conditions are largely favorable as its economy has moved beyond the fiscal shocks that weighed on growth in 2013, largely thanks to the U.S Congress’ approval of the Ryan-Murray budget and extending debt ceiling negotiations until March 2015.

Private-sector spending also continues to fuel economic improvement.

“With less fiscal drag likely this year, we forecast U.S. GDP growth of about 3 percent, up from 2.6 percent at our December Credit Conditions Committee meeting. While recent data show slowing expansion in the first quarter, the record-cold winter is partly to blame,” the report said.

In Canada, meanwhile, S & p expects the recovery to continue at a subdued pace, with real GDP increasing 2.5 percent in 2014 and remaining below 3 percent in 2015.

S & P also see’s credit conditions in Europe stabilizing although structural weaknesses, dysfunctional credit channels, and indebtedness are still holding back the eurozone, overall market sentiment has steadily improved.

“Nevertheless, the increased vulnerability of emerging markets worldwide and unpredictable geopolitical flare-ups, like the crisis in Ukraine, are potentially destabilizing risks that we are watching,” S & P said.

Growth in the eurozone and, with a few exceptions, most of Western Europe, is still anemic and fragile.

S & P now forecast 1 percent growth in real GDP in 2014 for the eurozone, which is marginally higher than the 0.9 percent projected three months ago.