As we approach the year 2024, sovereign Credit ratings are poised for pivotal shifts, with major economies such as the United States and China facing downgrade warnings. Moody’s, one of the leading Credit Rating agencies, has expressed concerns over these two economic powerhouses, highlighting potential consequences that could reshape the global financial landscape. Additionally, Turkey, Oman, Panama, and Israel find themselves at the center of attention, each potentially facing significant credit rating changes.

U.S. and China: A Deteriorating Outlook

Moody’s has issued negative outlooks for both the United States and China, casting shadows over their creditworthiness. While this development is certainly significant for the United States, as it risks losing its remaining triple-A rating, it also carries broader implications given the country’s status as the world’s largest economy. Marie Diron, a representative from Moody’s, emphasizes the urgency for Washington to address the looming threat of a significant deterioration in debt affordability. In the case of China, the agency is closely monitoring the country’s property and local government debt challenges, as they could potentially exacerbate its economic woes. Fitch and S&P Global, two other prominent rating agencies, are also closely following these developments, with Fitch underlining factors such as higher interest rates, defense spending, and an aging population that contribute to the United States’ growing debt levels. While Fitch predicts a slight decline in Chinese growth to 4.5%-5%, it has also modeled a hypothetical stress scenario in which the country’s growth plummets to just 1.5% and only partially recovers by 2025. In such an adverse scenario, a downgrade for China becomes more likely, albeit limited to a one-notch move, considering its broader strengths.

The Impact of Inflation on Accredited Investors: A Growing Concern

Turkey’s Potential Upgrade and Oman’s Investment-Grade Prospects

With Turkey aiming for its first upgrade in over a decade, President Tayyip Erdogan’s economic policies will be under scrutiny. Moody’s stresses that this ambition largely depends on the government’s ability to maintain the necessary efforts for economic repair. Specifically, the country’s upcoming local elections in March will serve as a litmus test for policymakers’ resolve to sustain interest rates above the 40% mark. Should Turkey successfully navigate these challenges and effectively attract foreign investors, it will signal positive momentum for the nation’s credit rating.

Conversely, Oman finds itself on the precipice of attaining investment-grade status, a significant milestone for its economy. Achieving this distinction would result in Oman’s bonds joining global fixed income indexes, thereby attracting substantial investments from large pension funds. Industry experts estimate that such inflows could reach $3 billion, subsequently reducing borrowing costs for the country. S&P’s Frank Gill observes that although oil prices still impact Oman’s economy, tax revenue as a percentage of GDP has surpassed 31%, indicating positive developments for this resource-driven nation.

The Rise of Crypto PACs: Influencing Elections with a $78 Million War Chest

Panama’s Challenges and Israel’s Uncertain Future

Panama faces a potential downgrade that could place it in “junk” status due to ongoing challenges associated with closing one of the world’s largest copper mines. This mine currently contributes approximately 5% to Panama’s GDP. Morgan Stanley has projected that the downgrade may occur around May 2024, coinciding with the country’s scheduled elections. Fitch, whose negative outlook aligns closely with these projections, appears closest to making this decision. Fitch’s Ed Parker notes that they have been raising red flags regarding Panama’s affairs and anticipates an eventful year for the nation’s credit rating.

Turning our attention to Israel, the country finds itself in a delicate situation. S&P has assigned Israel a negative outlook, while Fitch and Moody’s have issued “rating watch negative” and “rating under review” warnings, respectively. These assessments imply that credit rating downgrades may be imminent in the coming months. The ongoing conflict with Hamas, coupled with recent attacks by Yemen’s Iran-aligned Houthi rebels on Israel-bound ships in the Red Sea, only adds further uncertainty to Israel’s future. Fitch’s Parker emphasizes that the duration of the war and its aftermath remain significant unknowns. Furthermore, Israel’s fiscal deficit is expected to reach 5% to 5.5% of GDP in the next couple of years, as highlighted by S&P’s Gill. However, the country’s substantial foreign exchange reserves, totaling $200 billion, provide a cushion to cover its international debt obligations. Should negative developments persist, a transition from Israel’s current AA- rating to A+ could be on the horizon.

Other Countries and Potential Credit Rating Changes

While the focus remains on the United States, China, Turkey, Oman, Panama, and Israel, it’s important not to overlook other nations shaping the global credit rating landscape. Italy’s substantial debts warrant ongoing scrutiny, while countries such as Spain, Germany, and a pre-election Britain continue to spend at least 4 percentage points of GDP more than pre-COVID levels. Rating agencies, including S&P, anticipate a decision on whether to lower France’s AA rating. Gill expects this decision to be made by the end of 2024, as France struggles to address its debt-to-GDP ratio, which is projected to remain around 110% in the coming years. These agencies will closely monitor the implementation of additional fiscal reforms in France.

Chinese Interference in the 2022 Midterm Elections: A Deeper Look

As we approach 2024, the geopolitical and economic landscape carries both risks and opportunities for numerous countries. Credit rating agencies remain vigilant, undertaking comprehensive assessments of economies worldwide. From the United States and China’s delicate situations to Turkey’s potential upgrade, Oman’s investment-grade prospects, and the uncertain trajectories of Panama and Israel, the global credit rating landscape promises to be dynamic and challenging. Stay tuned for updates as these countries navigate through their credit rating hurdles.

Source: biz.crast.net

The post US and China Face Credit Rating Downgrade Warnings in 2024 first appeared on Spire Founders.