Expecting a covid vaccine, S&P does not see a global debt crisis in near term1 min read . Updated: 29 Oct 2020, 12:56 PM IST
The rebound in economies is predicated on the wide availability of a Covid-19 vaccine by mid-2021 and continued accommodative monetary policies, according to S&P
A global debt crisis in the near term is likely to be averted assuming that economies and private-sector demand recover, according to a report by S&P Global Ratings.
“Although we’re heading toward record levels of debt-to-GDP, we believe a near-term debt crisis is unlikely," according to Alexandra Dimitrijevic, global head of research at S&P in the note. The rebound in economies is predicated on the wide availability of a Covid-19 vaccine by mid-2021 and continued accommodative monetary policies, according to S&P.
The recent surge in coronavirus cases in the U.S. and Europe, however, is hurting investor sentiment for risk assets this week, as new restrictions in some nations threaten to imperil rebounding economies. The S&P 500 dropped the most in four months on Wednesday, and yield premiums on Asian dollar bonds widened this week for the longest stretch since the pandemic engulfed markets in March.
S&P projects global outstanding debt, including that of governments, corporates and households, to rise 10% to $200 trillion in 2020, peaking at 265% of gross domestic product by year-end.
Stresses for weaker corporates and industries most exposed to the impact of social restrictions will remain over the short term, and S&P expects defaults to likely rise to levels not seen since the global financial crisis in 2009.
“Our expectation that a global economic rebound will pick up speed next year is not without risks," Dimitrijevic added. “Additional waves of Covid-19, or a delayed vaccine, could alter the trajectory to a W-shaped rebound--as could rising interest rates and a sustained dramatic widening of credit spreads, or a rebound in demand that falls short of our expectations."