Credit conditions steady, but inflation,Omicron post threats in 2022: S&P

December 2, 2021

SINGAPORE  -- Credit and financing conditions are largely favourable in the run-up to 2022, says S&P Global Ratings. However, factors including high cost inflation and the new COVID-19 Omicron variant could pose a significant risk to that stability.

Surging global demand, extraordinarily benign financing conditions, supply chain strains, soaring energy prices, and higher global leverage have all been triggered by the shock of COVID-19,S&P says.

"Although credit momentum remains positive -- with financing conditions supported by fiscal and monetary policy and solid economic growth -- the recovery's foundations are vulnerable to setbacks in light of the new Omicron variant, uneven vaccination rates globally, and high inflation."

Alexandra Dimitrijevic, Head of Global Research at S&P Global Ratings, said: "Credit conditions are currently looking largely favourable as we move into 2022, but the foundations of recovery are still fragile and subject to setbacks.

"More than the potential effects of Omicron or other variants, high inflation and lingering high prices tied to supply chain issues and increasing energy prices could push major central banks to hike rates sooner and faster, triggering volatility and sharp market repricing.

"These risks are amplified by higher global leverage compared to the pre-pandemic environment.

"It is difficult to ignore the weaker rating distribution of speculative-grade nonfinancial corporates, over 30% of which are still rated 'B-' or below.

"We are not out of the woods yet."


*S&P estimates that global debt outstanding will increase by US$37 trillion in 2021 - -the size of U.S. and China's combined GDP -- to $225 trillion, in no small part due to the pandemic.

"Global debt to GDP should fall from 2022 onward as incomes recover, particularly for the corporate sector," it says.

"However, interplaying factors, such as policy shifts or inflation, could lead to a sudden tightening of financing conditions or markets." (ATI).