Tight liquidity and funding conditions, uncertainty about China’s macroeconomic outlook and property sector, and geopolitical event risk remain the core macro-credit risk themes heading into 2024, Fitch Ratings says in the latest version of its Risk Headquarters report.

Despite recent data signalling continued disinflation in major developed economies, the continued resilience of the US consumer could yet lead to an ‘even-higher-for-even-longer’ interest rate scenario should demand data be stronger than expected and exceed central bank forecasts. A further ratcheting higher of US interest rates would intensify financial condition tightening, raising asset-quality pressures and increasing the risks of a stress event in the financial system. This would notably contribute to the divergence in ratings trajectories between higher-rated issuers and more leveraged issuers at the lower end of the spectrum.

China’s property crisis remains a key risk for the economy as a whole, feeding through to consumer demand and investment while pressuring local government financing vehicles and increasing asset risks within trust products. Policy support has increased since the summer, though there remains a high degree of uncertainty as to whether it will be sufficient to begin a recovery in the property sector.

Our global Key Risks have been updated to include Rates, Asset Valuations and Financial Stability; Geopolitics, Governance and Policy Risks; China Property & Macro; and Real Estate.

‘Risk Headquarters: November 2023’ provides further information on our global macro-credit risks analysis and can be found at fitchratings.com or by clicking the link above.