Fitch's 3rd Annual Global Sovereign Conference: Record Year for Downgrades; LatAm Under Pressure
"The record number of sovereign downgrades in 2016 overwhelmingly reflects weaknesses in emerging markets, caused by a combination of lower commodity prices and a strong dollar," said Tony Stringer, Fitch Sovereigns Chief Operating Officer. "Looking ahead, Negative Outlooks on emerging market sovereigns continue to dominate and will likely lead to more downgrades, whereas the key issues facing developed market sovereigns are political risks and high debt levels."
The event, held at The Pierre, also featured Fitch Chief Economist Brian Coulton, Fitch head of Latin American sovereigns Shelly Shetty, and a keynote by Mario Mesquita, Chief Economist for ITAU Unibanco. Topics covered include politics, populism and the global economy and slow growth, fiscal deterioration and Latin American ratings. A panel discussion spanned the global economy, and key factors impacting the US, Russia, Latin America. Coulton addressed the crowd, offering, "Political uncertainty in the advanced economies has become a more important source of global macro risk, just as the near term threat to world growth from emerging markets has eased somewhat.
"The risk of increased fragmentary tensions in Europe and the possibility of trade protectionism - in the context of rising expressions of anti-globalization sentiment - could damage prospects for private investment. The political context is also shaping the global macro policy debate with increasingly loud support for a greater focus on fiscal stimulus to support growth. This comes alongside rising doubts about the likelihood of further unconventional monetary stimulus measures being sufficient to boost growth."
Shetty discussed challenges confronting Latin American sovereigns, stating, "Downward rating pressures are emerging for Latin American sovereigns due to subdued growth, wider fiscal deficits, increased government debt burdens and a challenging political environment. "While strengthened external liquidity buffers and improved policy frameworks in recent years have prevented a faster deterioration in credit ratings, the importance of making progress on structural reforms to boost productivity and investment prospects is gaining importance to reverse the downshift in trend growth and help improve the outlook for fiscal accounts and debt trajectories."
Shetty then joined Mesquita for a conversation about the outlook for the Brazilian economy and prospects for reform. Mesquita mentioned that "activity seems to be stabilizing, although a sustainable recovery hinges on the approval of reforms."
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