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Fitch: Global Sovereign Rating Outlook Improves, but High Debt Lingers
July 12, 2017 / 8:34 AM / 5 months ago

Fitch: Global Sovereign Rating Outlook Improves, but High Debt Lingers

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 2017 Mid-Year Sovereign Review and Outlook: Rating Outlook Less Negative, but Debt Levels Still Moving Higher here LONDON, July 12 (Fitch) The global sovereign credit cycle reached an inflection point at the end of last year and has turned less negative in 2017, says Fitch Ratings in its mid-year Sovereign Review and Outlook. As of end-June, there were 17 sovereigns on Negative Outlook and nine on Positive Outlook, a significant change from end-2016 - a record year for sovereign downgrades - when the Negative: Positive ratio was 26:5. "Factors that support the improvement in sovereign credit fundamentals include a synchronised pick-up in world GDP growth forecast for 2017 and 2018, a recovery in cross-border trade volumes, the stabilisation of commodity prices, albeit at a lower level, and a global macroeconomic policy backdrop that remains broadly accommodative," said James McCormack, Global Head of Sovereign and Supranational Ratings at Fitch "The biggest constraint on ratings is high and still-rising government debt levels, evident in both developed and emerging markets, leaving sovereigns exposed to a change in the global interest rate environment," McCormack added. The most notable improvement in emerging market sovereign credit profiles is in external finances. The median emerging market current account deficit is forecast to improve slightly to 2.9% of GDP this year versus 3.3% in 2016, and, on the back of strong capital inflows, foreign exchange reserves (excluding China) are projected to increase by about USD110 billion, the most since 2012. Unlike the 2013 "taper tantrum", there has been no sign of disruption to emerging market capital flows associated with the Federal Reserve tightening, and Fitch does not expect any such disruption in the immediate term. A notable difference between 2013 and 2017 is the direction of change of 10-year US Treasury yields, which moved higher in 2013 and are currently on a slow downward trajectory. An eventual reversal in US yields, which is expected by Fitch as the relationship between real yields and real GDP growth normalises, would represent a risk to emerging markets' external funding conditions. In developed markets, the rating outlook trend has turned positive, based largely on country-specific developments rather than any common cross-regional improvement in sovereign creditworthiness. The European political environment is more settled than at the start of the year, and the short-term outlook is more benign, as existential questions surrounding the eurozone have become less urgent. Even so, higher-than-usual policy uncertainty remains in developed markets. It is still unclear whether Europe's political setting can deliver the much-needed structural reforms to support growth, Brexit negotiations have started and represent a material risk to the UK and - to a lesser degree - remaining EU member states, and changes to US tax and trade policies remain uncertain, as do the implications for US trade partners. Despite clear upward global growth momentum, most sovereigns are forecast to see deteriorations in their primary fiscal balances (balances excluding interest rates) in 2017 following four consecutive years of general improvements. This is attributed largely to waning political support for additional fiscal tightening in developed markets, and policymakers in a number of emerging market sovereigns still struggling to cope with the downward adjustment in commodity prices. The upshot is that more than one-in-five sovereigns will reach their highest level of government debt as a share of GDP this year (using the period 2000-2017 as the basis of comparison), and 40% will have done so since 2015. The full report, "Mid-Year Sovereign Review and Outlook" is available at the above link or at Contact: James McCormack Global Head of Sovereign Ratings Managing Director +44 20 3530 1286 Fitch Ratings Limited 30 North Colonnade London E14 5GN Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:; Hannah James, New York, Tel: + 1 646 582 4947, Email:; Athos Larkou, London, Tel: +44 203 530 1549, Email:; Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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