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Global sovereign rating downgrades likely to outpace upgrades in 2016: report

7 January 2016 06:30 pm - 0     - {{hitsCtrl.values.hits}}

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Sovereign downgrades are likely to outpace upgrades in 2016, says Standard & Poor’s Ratings Services in the report: ‘Global Sovereign Rating Trends 2016’.
Among the 131 sovereigns it rates globally, 25 had negative outlooks versus eight positive outlooks on December 31, 2015, a ratio of three to one. 

“The outlook balance--positive minus negative outlooks--has dropped to -17 from the seven-year high of -4 in June 2015,” said Standard & Poor’s Chief Rating Officer for Sovereign Ratings Moritz Kraemer.

“This constitutes the most negative six-monthly swing in the outlook balance since December 2008.” 

This outlook distribution suggests that negative rating actions are likely to continue to outnumber positive actions over the coming 12 months. And it also indicates that the dominance of downgrades is likely to accelerate this year compared to last.

Negative outlooks have outnumbered positive outlooks since early 2008. However, the second half of 2015 has seen a reversal of the gradually improving trend in the outlook balance that had begun in 2013. Over the past year, the outlook balance has deteriorated in all global regions except Asia-Pacific, which continues to have a rare positive balance of +1 (with positive outlooks in Indonesia and Pakistan outnumbering the negative one of Papua New Guinea). 

The deterioration was most pronounced in the Middle East, Commonwealth of Independent States (CIS) and Africa, where the negative balance doubled to -12, an all-time regional low. Latin America and the Caribbean (to -4 from -2) have seen a more moderate deterioration during 2015, as has Europe (to -2 from zero).
Global sovereign creditworthiness has declined slightly since the onset of the global financial crisis in 2008. The average long-term sovereign credit rating has fallen by just over one notch to between ‘BBB-’ and ‘BBB’, compared with just below ‘BBB+’ in 2008. 

The average rating as weighted by countries’ gross domestic product (GDP) has also trended downward, although it has been slightly more stable, currently standing marginally above ‘A+’. This is comparable with sovereign ratings in 2005, but is slightly lower than the ‘AA-’ peak in mid-2008.
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