LONDON, Dec 13 (Reuters) - A decade-long, post-financial
crisis deterioration in governments' credit ratings looks set to
end in 2018, S&P Global said on Wednesday.
Data from the rating agency showed there had been twice as
many sovereign downgrades as upgrades on average over for the
last decade and in 2017 so far.
It has also pushed down average sovereign rating around the
world by one notch over the past 10 years. It now stands at
'BBB-', just inside so-called 'investment grade', but the tide
now looks to be turning.
For the first time since March 2008, the balance of rating
'outlooks' - which give an indication of the direction of travel
of a rating - is positive, albeit only minimally so.
"This suggests that the slow but inexorable slide in
sovereign ratings over the past decade may come to a halt in
2018," S&P's top sovereign analyst Moritz Kraemer said.
"Potentially, we may even see a very mild recovery of the
average rating. In this sense, 2018 could be a watershed year."
The shift comes against the backdrop of a global economic
recovery which has been nurtured by unprecedented levels of
Interest rates of many of the world's leading central banks
are still close to zero. The balance sheet of the G4 central
banks alone has quadrupled from pre-crisis levels to reach
almost $16 trillion, approaching 20 percent of world GDP.
Despite the brighter outlook for ratings globally, S&P
cautioned that the recovery was likely to be uneven.
Kraemer said even relatively small shifts back to advanced
economies' securities by investors relative to their outstanding
volume, can have a meaningful impact on some emerging markets.
"Other things being equal, one can expect sovereigns more at
risk of a capital flow reversal would be those that display a
higher dependency on foreign savings (and thus capital inflows)
to finance their economic models."
Looking at a total of six different variables, he said those
most at risk from monetary tightening are, in descending order,
Venezuela, Bahamas, Mozambique, Montenegro, Turkey, Ethiopia,
Pakistan, Kenya, Oman, and Sri Lanka.
Among large emerging markets, Turkey appears the most
exposed. It was among the original "Fragile Five" in 2013, when
the U.S. Federal Reserve indicated it could soon start winding
down its quantitative easing program.
Among the other original five, South Africa, Indonesia, and
India are "firmly in midfield", Kraemer added, while Brazil is
now among the most resilient emerging economies.
(Reporting by Marc Jones, Editing by William Maclean)
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