Fitch: Most Sovereign Rating Downgrades Since GFC?
More state borrowers will likely tighter credit conditions due to the outbreak-linked economic impact and fiscal impact from subsequent policy responses, said ratings agency Fitch.
«The intent will be to evaluate whether temporary – and in many cases, urgent – fiscal measures introduced to counter the impact of the coronavirus will have public finance implications that last through the medium term,» Fitch said in a commentary.
In addition to ongoing monetary loosening, governments worldwide are stepping up fiscal measures to combat the ongoing pandemic. But depending on the magnitude of such measures and their consequent impact, sovereign rating downgrades could be more pronounced than any other year since the aftermath of the last global financial crisis, Fitch added.
«Sudden Stops»
In addition to a flurry of headwinds, one major economic risk governments could face is the full halt in all activities – a phenomenon Fitch calls «sudden stops».
«Global economic policymakers face an unprecedented combination of challenges including a health crisis, economic disruption, severe financial market dislocation, changes in investor sentiment, exchange-rate volatility and a commodity price shock,» Fitch explained. «One of the primary economic consequences for regions and countries affected by coronavirus is 'sudden stops' in activities.»
Fitch noted that fiscal policy responses are likely to match existing monetary policy responses but added that traditional macroeconomic policies will have a limited effect to offset health-related risks though it can soften the impact on household and corporate income.
