Rising credit risk tied to trade and policy shifts

July 25,2025(MLN): Fitch Ratings has highlighted persistent downside risks to global credit, citing growing uncertainties tied to a cyclical economic slowdown, volatile U.S. tariff policies, and ongoing geopolitical tensions.

 Despite these challenges, the agency noted that economic indicators and capital markets have shown remarkable resilience in 2025, reflecting investor confidence in the long-term resolution of key global risks and the limited spillover from short-term events.

Issuer ratings have remained largely stable with minimal downward pressure.

 A key factor supporting market stability has been the temporary pause in U.S. tariffs announced in April, coupled with the swift resolution of geopolitical disputes and robust consumer spending in the U.S, according to Fitch ratings yesterday.

These developments have sustained investor risk appetite and kept market liquidity elevated, even in an environment characterized by heightened uncertainty.

High-yield credit spreads remain near historic lows, and global equities performed strongly during the first half of 2025.

However, the agency warned that signs of market volatility are emerging.

A sudden shift to risk-off sentiment led to a significant correction in asset valuations and widening credit spreads after the U.S. introduced a broader-than-expected round of tariffs.

Although valuations have since rebounded, the U.S. dollar’s approximately 10% decline against the euro in 1H25 signals investor concerns about weakening U.S. economic growth.

Fitch also revised its mid-year sector outlooks, reflecting growing pessimism about the operating environment.

Currently, 29% of sector and structured finance asset performance outlooks are categorized as “deteriorating,” compared to just 10% at the beginning of the year an indication of worsening expectations for 2025.

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