EMERGING & ESTABLISHED RISKS
What We're Watching: Key Themes 2025
The intensifying global trade war will likely weaken global credit conditions, threatening what has been a fairly favorable environment for most borrowers. While market volatility is likely to continue, ratings performance has so far exhibited resilience.
Key Themes
S&P Global Ratings sees 2025 as a year of promise and peril. The descent in policy interest rates and soft landings in many major economies may deliver on the promise of more favorable credit conditions. But intensifying geopolitical and trade tensions increase the peril present in an already tumultuous environment.
We are closely watching the credit implications of emerging and established risks—trade, tariffs, and policy; digital infrastructure and innovation; changing capital flows; energy and climate resilience; and debt markets in transition—over what promises to be another tumultuous year for global markets.
Trade, Tariffs, & Policy
S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses—specifically with regard to tariffs—and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly.
Key Insights
Featured
Sovereigns Are Likely To Weather The Direct Impact Of Trade Tensions While Secondary Effects Loom
High market volatility and uncertainty owing to trade tensions threaten the outlook for global economic growth.
The U.S. administration's announced tariffs, if implemented, will not affect all sovereigns equally. Open economies with large exports to the U.S. could be more exposed.
We expect most sovereigns to withstand the initial effects of tariffs in line with their current levels of creditworthiness. But secondary effects--lower economic activity and commodity prices, and elevated funding costs--could take a toll on credit quality over the next few months.
Global geopolitical risk remains at its highest in decades and has the largest potential for disruption for sovereigns globally.
Digital Infrastructure & Innovation
As global and regional markets race to finance and adopt the technologies of the future, the technological revolution is taking shape today. Demand for digital infrastructure (such as data centers and fiber projects) is likely to reshape entire sectors, while innovation (including decentralized finance and AI adoption) will foster broader operational and business model disruptions. This era of growth and discovery also heightens risks. Amid increasing technological dependency and global interconnectedness, cyberattacks pose a potential systemic threat and significant single-entity event risk.
Key Insights
Featured
Cyber Risk Insights: Sovereigns And Their Critical Infrastructure Are Prime Targets
The potential for political interference and economic disruption made rated sovereigns and their critical infrastructure the target of a majority of reported cyber breaches since 2000, according to data analyzed by S&P Global Ratings.
Recent geopolitical tensions provide new impetus for attacks on sovereigns, including within the scope of hybrid warfare and to cause political unrest.
Effectively managing sovereigns' cyber risk requires the investment of time and resources to develop public sector defenses that are robust, responsive, and adaptable to evolving threats.
Currently, we consider it unlikely that a cyber incident might significantly or directly affect the creditworthiness of a sovereign.
Debt Markets In Transition
Market participants' need for transparency on the full scope of credit risk will expand as the financial system evolves, with increasing interplay and interconnection between public and private markets.
Key Insights
Featured
Systemic Risk: Global Bank-Nonbank Nexus Could Amplify And Propagate Market Shocks
Banks and nonbanks are competing and converging in the financial system, as they offer credit intermediation while also providing funding to each other. Private credit exposures, in particular, have grown rapidly on the balance sheets of insurance companies, funds, and nonbank financial institutions (NBFI) lenders.
The plethora of direct and indirect funding and liquidity connections between banks and nonbanks could amplify and propagate systemic risk.
Current relatively benign funding conditions limit imminent financial stability risks, but geopolitical shocks could trigger renewed turbulence.
In our view, major global banks have improved their counterparty credit risk management, due in part to increased regulatory probing, and collateral and good diversification by borrower type can further help mitigate their credit risks.
Changing Capital Flows
Fundamental geopolitical changes at play will likely lead to material shifts in capital flows between regions, sectors, and asset classes. Downside risks remain high amid increasing market volatility, and investors are rebalancing their portfolios to adjust for shifting risks—anticipating additional uncertainty. Borrowers (especially those at the lower end of the ratings spectrum facing still-elevated borrowing costs and tighter access to credit) will need to adapt to changing capital flows from long-duration speculative assets to safer havens, with implications for overall market liquidity, currency reserves, and investment in emerging markets.
Key Insights
Featured
Nonbank Financial Institutions' Profitability Will Be Tested In 2025
We expect our ratings on nonbank financial institutions to remain relatively stable in 2025, though highly uncertain credit conditions will test profitability.
Higher tariffs might worsen already high, sticky inflation and slow--or reverse--the descent in policy interest rates, potentially causing uncertainty around fincos' growth opportunities, straining asset quality, and raising funding costs.
The consistency of funding through the cycle is essential to the industry's ratings stability, given most funding is from wholesale sources.
Energy and Climate Resilience
More severe and frequent extreme weather events and worsening physical climate risks continue to influence credit fundamentals, and threaten to disrupt supply chains without adaptation. Low- and lower-middle-income countries are the most vulnerable and least ready to adapt. At the same time, the energy trilemma of affordability, security, and sustainability is increasingly coming into focus as the transition evolves.
Key Insights
Featured
Sustainability Insights: Global Sustainable Bond Issuance To Hold Steady At $1 Trillion In 2025
Green bonds will continue to dominate issuance, with transition and sustainability-linked bonds potentially helping to push total sustainable bond issuance to $1 trillion this year.
More than $900 billion of rated outstanding sustainable bonds mature in the next two years and nearly $2.5 trillion before the end of the decade, testing market participants' commitment to climate action and the strength of the sustainable bond market.
Efforts to close the climate finance gap in lower-income countries, a rebound of sustainability-linked issuance, a broader base of transition bond issuers, or expanding issuance in China could be swing factors for 2025 volumes.