The turn of the global monetary policy cycle this year, with rate cuts in the US, Eurozone, and other major economies, has significantly contributed to investor confidence and a relatively benign global macro and credit environment, according to Fitch Ratings in its latest Risk Headquarters report.
However, geopolitical and political risks, deflationary pressures in China, and capital market volatility persist. Fitch’s base-case economic forecasts project a deceleration of economic growth in the US and China by 2025.
Despite upside surprises to US economic growth and the beginning of rate cuts by the US Federal Reserve and the European Central Bank (ECB), major risks to global credit have not materially changed over the past three quarters.
The report highlights key risks to global credit, including capital market instability, geopolitical tensions, governance and policy challenges, as well as macroeconomic and real estate issues in China.
The upcoming US election and the policy themes that will emerge with the new Congress and administration in 2025 are critical events to monitor, with potentially significant implications for credit.
Trade policy could have a substantial impact on the global economy if the US implements aggressive protectionist measures in 2025, leading to retaliatory actions by key trading partners.
Additionally, fiscal and immigration policies under a new government may influence disinflationary trends and affect the rate-cutting trajectory.