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Survey reveals pessimistic outlook on global credit conditions by financial managers


pessimistic outlook on global credit conditions, financial news

The International Association of Credit Portfolio Managers (IACPM) conducted a survey with a broad and diverse participation from the financial sector. The survey included portfolio and asset managers from over 135 financial institutions, which spanned more than 30 countries globally. This survey was aimed at gauging the sentiments and outlook of these professionals on the global credit conditions.


The findings, published on Thursday, provide a crucial insight into the prevailing views held by influential players in the finance industry, reflecting the collective wisdom and analysis of a significant segment of the global financial community.


The survey's results indicated a strong consensus among the participants regarding the future trajectory of corporate credit defaults. A majority of the respondents, 51%, anticipate an uptick in these defaults in North America. The concern is even more pronounced for Europe, where 57% of the participants foresee a similar trend as we read in Bloomberg. This expectation of an increase in corporate credit defaults suggests a growing apprehension within the financial community about the health and stability of corporate financial structures in these regions, signalling potential challenges ahead in the corporate sector.



Apart from the corporate sector, the survey also shed light on the financial condition of lower-income U.S. consumers. While the primary focus of the survey was on corporate defaults, the findings suggest that financial strains are being felt by this demographic group as well, although at a slower rate compared to corporations.


The survey posits that the relative financial resilience displayed by these consumers could be due to factors such as the low unemployment rate, which provides a measure of economic stability, and the access to affordable housing loans characterized by very low interest rates. These factors might be providing a cushion against the broader economic pressures experienced by this segment of the population.


Despite the heightened expectations of corporate defaults in North America, the participants' views on the likelihood of a recession in the region were more divided. Only 25% of those surveyed expressed the belief that North America is on the brink of entering a recession within the year.



This suggests that while there are concerns about certain economic indicators, such as corporate defaults, there may be other, more positive factors at play, or a belief in the resilience of the North American economy, that are tempering the overall outlook for the region.


The survey's findings regarding Europe painted a more gloomy picture compared to North America. A substantial 37% of participants anticipate that Europe will enter into a recession within the year. Adding to this pessimism, 19% of respondents believe that Europe has already begun experiencing a recession.


This perception indicates a more pronounced concern among financial professionals about the economic health of Europe, where factors contributing to this outlook might include various economic, political, and social challenges currently faced by the region.



When discussing credit spreads, the survey participants indicated an expectation of a broad increase. Credit spreads are critical indicators in the financial world, representing the difference in yield between different types of debt securities, often correlated with their risk levels.


A widening of these spreads generally suggests a perception of increased risk or a less optimistic view of the economic landscape. This expectation of wider credit spreads is indicative of a belief among the financial community of growing risks and uncertainties in the credit market.



In contrast to the general expectation of widening credit spreads, the sentiment for investment-grade corporates in North America was different. The survey participants expect tightening credit spreads for these entities during the year. This viewpoint reflects a nuanced understanding of the market, where even in an environment of broader economic uncertainty, certain segments, like investment-grade corporates, are perceived to be more stable or less risky.


Som-lok Leung, the executive director of the IACPM, highlighted that the credit spreads had tightened significantly in the first quarter and are now considered to be in alignment with the current economic and market cycles, suggesting a market adjustment to the evolving economic conditions.


11.04.2024



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