Fitch Ratings predicts neutral credit outlook for 2025 amid economic challenges

Fitch Ratings has projected a broadly neutral credit outlook for 2025, supported by major central bank rate cuts, and a marginal slowdown in global economic growth by 0.2 percentage points.

However, the agency warns of significant credit risks due to continued economic deceleration in the U.S. and China, the fragility of the eurozone recovery, uncertainties around U.S. economic policy, and geopolitical flashpoints.

The year 2024 was marked by US economic resilience, a tentative eurozone recovery, strong capital markets, and positive rating trends.

Major global credit risks, including inflation, geopolitics, and contagion from stressed valuations in key asset classes such as U.S. commercial and Chinese residential real estate, did not materialize.

Despite the global economic cycle remaining in a downturn, the prospects of a hard landing have diminished, with the U.S. and China both forecasted to continue decelerating in 2025.

Fitch Ratings noted that the performance of ratings reflected the broad normalization of economic and credit conditions since the pandemic.

The balance of positive and negative rating outlooks has returned to near equilibrium for both investment and sub-investment grade categories.

Additionally, the majority of over 300 sector and asset performance outlooks, which provide a forward-looking assessment of underlying operational and business conditions, are rated as 'neutral' for 2025.

Despite these stabilizing factors, Fitch Ratings highlights significant risks and uncertainties ahead.

According to Fitch, the incoming Trump administration's plans to materially increase tariffs could trigger a global trade war, negatively impacting growth.

Other potential U.S. policy priorities, such as tightening immigration restrictions and implementing tax cuts, could exacerbate inflationary pressures.

Moreover, U.S. policy uncertainty is expected to have global repercussions, posing a key potential negative for credit in Europe, Asia, and other major U.S. trade partners. Global geopolitical tensions in Europe and Asia also remain a significant risk.