The outlook for sovereign creditworthiness in 2018 is stable overall, with healthy growth and synchronized global economic expansion of 2017 likely to continue into next year, according to Moody's Investors Service on Wednesday.
"The stable outlook reflects Moody's expectations for the fundamental credit conditions that will drive sovereign credit over the next 12-18 months," rating agency said in a statement.
"The benign state of the global sovereign credit environment is reflected in the fact that almost three-quarters of Moody's-rated sovereigns currently hold a stable rating outlook..." Alastair Wilson, Moody's managing director for global sovereigns, said in the statement.
"While the increasingly solid momentum in growth balances against the continuing risks from high debt levels as well as from elevated geopolitical tensions."
Pointing at the favorable macroeconomic environment, Wilson said Moody's expects over 3 percent global gross domestic growth in 2018.
"That benign economic backdrop allows governments a longer window in which to carry out economic and fiscal reforms," he said.
As noted in the company's statement, 74 percent of the 137 Moody's-rated sovereigns have a stable outlook, while 13 sovereigns hold a positive outlook, in line with the credit environment that Moody's foresees for sovereigns in 2018.
"Only 22 sovereigns have a negative outlook compared with 35 a year ago, pointing to the likelihood of fewer downward rating adjustments in 2018 compared with 2017," the agency said.
- CHALLENGES
Moody's also said there are several disputes that "forestall a greater improvement in global credit conditions".
"One is that domestic political uncertainty and social tensions weaken the commitment to economic and fiscal reform," it said.
"There is progress on this front, with ongoing labor market reforms in a number of European countries as well as in Japan, albeit at a slow pace.
"However, political and social considerations remain an obstacle to rapid reforms, particularly in countries such as Brazil, South Africa and Turkey."
International credit agency underlined high public debt levels as another challenge -- although at generally stable levels.
"The third challenge is that heightened geopolitical risks have a higher profile than in recent years and could potentially undermine the stable outlook for sovereign credit," it said.
Remarking on rising tensions in both the Korean peninsula and in the Gulf Cooperation Council area -- comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates -- the company said the trade policies of the U.S. continue to pose a risk to growth.
"And while anti-consensus political movements have not gained the electoral the traction in western Europe that was feared at the start of the year, the potential for destabilizing political events remains, as illustrated by the ongoing tensions between Spain and Catalunya," it added.
