Moody’s Ratings and Fitch Ratings have both issued stark warnings about deteriorating global credit conditions, citing escalating trade tensions, policy uncertainty and geopolitical risk as major threats to economic stability in 2025.
This comes ahead of July 9, when US President Donald Trump is expected to formally lift the current pause on tariffs imposed on imports, potentially reigniting a global trade war.
The move has added to investor anxiety over a more aggressive protectionist agenda.
Moody’s on Thursday revised its global sovereign outlook to negative from stable, highlighting the risk of structural decoupling between major economies and prolonged uncertainty around trade policy.
“Unlike the pandemic’s severe contraction, which was followed by rapid recovery, we anticipate a milder but more prolonged slowdown,” Moody’s said.
It warned temporary support measures will likely prove inadequate against sustained shifts in trade, slowing fiscal consolidation and constraining productivity-boosting investment.
“Stalled or prolonged trade negotiations and the risk of structural decoupling are also causing supply chains to realign and are redefining long-term trade relationships,” the agency said.
“Such a shift has broad implications for growth models and fiscal dynamics, especially for economies deeply embedded in global manufacturing networks.”
Fitch Ratings echoed these concerns in its Midyear Update, released Wednesday. The agency said the first half of the year had seen a sharper-than-expected deterioration in credit conditions.
“Increased tariffs, US policy uncertainty and elevated geopolitical risk have created a more challenging macroeconomic environment than Fitch originally expected,” it noted.
Fitch downgraded 56 out of 288 sector and asset performance outlooks to “deteriorating” from “neutral”. The agency identified four critical factors for the remainder of the year: trade and tariffs, inflation and interest rates, geopolitics and fiscal policy.
“A much more aggressive US protectionist agenda, including tariff rates far in excess of our original assumptions set at end-2024, is the key factor driving the negative revisions to our macroeconomic outlook up to midyear 2025,” Fitch said. “As such, the end point for tariffs remains a major watch item for global credit.”
While widespread credit downgrades have not yet materialised, the agency cautioned weakening fundamentals are likely to test the resilience of corporates and sovereigns alike.
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