In Europe in particular, Fitch downgrades its rating outlook to “neutral” from “improving”
In degradation of prospects of state ratings all over the world in constant, from improving, the Fitchdue to the deteriorating lending conditions of governments around the world.
According to a Money Review article, the effects of the war in Ukraine and sanctions on geopolitical risk, trade, capital flows, growth rates and inflation will not be lifted in the second half of 2022, the rating agency acknowledged.
In Europe, Fitch is also downgrading its rating outlook from “neutral” to “improving”, warning that weaker growth will slow, though not reverse, fiscal consolidation.
The house speaks of a significant deterioration in the macroeconomic environment due to the war in Ukraine. The downgrades in the growth forecasts of Western European countries reflect their high exposure to the energy shock and the sharp rise in wholesale gas prices, which will have a major impact on inflation and real incomes.
As the war in Ukraine continues, there is a risk of a sudden shutdown of Russian gas flows to Europe, Fitch said, noting that the chances of a complete cut in gas increased after Gazprom significantly reduced supplies to countries such as Germany and Italy.
In such a scenario, once a gas bill is imposed on industry, it will be difficult for the eurozone to avoid a recession, Fitch notes.
At the same time, governments are responding to the inflation shock with measures to support households and businesses, while state budgets are being burdened by the cost of the refugee crisis and defense equipment. However, Fitch points out that fiscal overperformance in 2021, as revenue increases, creates a “cushion” to increase spending this year, without significant revisions to fiscal targets.
On the face of rising bond yields, Fitch estimates that the ECB’s planned anti-fragmentation program could reduce the risk of sharp changes in lending costs, which would negatively affect debt dynamics in the most troubled countries. “This will support the debt of these countries, but progress in stabilizing and reducing debt will remain key to our government ratings,” analysts said.
SOURCE: MONEY REVIEW
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