Risky Business

Outlook on Corporate Credit Quality

Following a year of economic growth concerns, sticky core inflation, increasing interest rates, and a rash of bank failures, treasurers have been acting as corporate risk firefighters, mitigating the impact of tumultuous events on their organisations’ bottom lines.

The past 18 months have seen the global economy enter an environment of stagflation, high inflation, low growth, and high interest rates. While there are signs that this period may be closer to the end than the beginning, there is still more to see on a macroeconomic level before stagflation can be declared officially over.

Alex Griffiths, Head of EMEA Corporate Ratings, Fitch Ratings, explains: “The situation is gradually moving through that process and approaching a transition, but we’re not there yet. Inflation is coming down, but nobody’s completely convinced that it’s over with. While we have revised our expectations down, we don’t think it will hit most central bank target levels until 2025.”

Interest rates are nearing their peak, with the Federal Reserve, European Central Bank and Bank of England pausing their hiking cycles in the late October/early November round of monetary policy meetings, so the end of the current hiking cycle is in sight. Despite this, market expectations are for rates to remain at their current elevated level for some time, rather than rate cuts being on the agenda in the short term.

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