Global credit weakens with rising market volatility: S&P

NEW YORK

Credit conditions around the world are weakening with increasing volatility in global markets, according to Standard & Poor's (S&P).

The company's rating services said late Tuesday that some of the current concerns about global growth are volatility in financial markets, China's ability to rebalance its economy, weak commodity prices, and funding difficulties.

S&P evaluated macroeconomic conditions and financial trends that could have a negative impact on credit quality in North America, Europe, Asia-Pacific and Latin America.

And concluded that "credit conditions are generally less favorable for all regions." In North America, credit conditions are less favorable in the U.S. and Canada this year, compared to 2015.

Although economic fundamentals remain resilient in the U.S. with a slower-than-anticipated pace of the Federal Reserve’s interest rate hikes, Canada struggles with low oil and commodity prices.

In Europe, the slowdown in GDP growth continues to cause concern. But S&P believes trade within the EU is likely to increase in 2016.

There are still questions about the U.K.'s possible exit from the EU, which could trigger a period of economic and financial uncertainty.

“The Bank of England would be ready to defend the pound sterling. The government has tools in its bag as well," S&P said.

The financial services company also warned that European banks could adopt bolder behaviors to seek higher returns by extending riskier loans or investing in riskier assets.

Fears about China's ability to rebalance its economy dominates markets in the Asia-Pacific region.

S&P emphasized that more economic reforms in China are needed, and added that financial and economic risks to the country's "creditworthiness" are gradually increasing.

"Over the next five years, China will show only modest progress in economic rebalancing and credit growth deceleration.

In addition to China, we regard the near-term negative momentum in Asia-Pacific credit quality as likely to continue in terms of downgrades," S&P explained.

And, in Latin America, regional issues such as a recession in Brazil, slow growth and weak currencies, lead to worries about countries' credit conditions.

S&P expects a modest recovery in the region in 2017, as commodity prices, especially oil, begin to gradually rise along with external demand.