The build-up of macro risk for global credit is the core theme of Fitch Ratings’ 2023 outlook reports. We expect risks related to sustained above-average inflation, supply constraints and tightening monetary conditions will crystallize this year, leading to recessions in the U.S. and Europe while exposing vulnerabilities in certain risk assets.

Fitch has assigned sector and asset performance outlooks to 339 sovereign, corporate, financial institution, public finance, infrastructure and structured finance sectors. These outlooks assess our expectations for operating conditions and core credit drivers for the year ahead relative to the past 12 months. We expect almost half of these sectors to show a deterioration in these drivers this year. This is a significant increase from end-2021 when our expectation was for only 5% of sectors to deteriorate in 2022.

Our sector outlooks are based on our macroeconomic base case, however a number of core unknowns, especially related to inflation/rates, energy, property and geopolitics underscore an elevated risk environment. Uncertainty around the trajectory of inflation and terminal policy rates as well as the energy market in Europe will remain key watch items even as headline inflation rates and gas and oil prices have begun to fall. However new risks will also be present. Significant uncertainty about the extent of home price corrections in several major economies as well as heightened policy and political risks will be greater factors for credit in 2023.

For most sectors and regions though, there is a distinction between our expectation for top-line credit and macroeconomic conditions and our expectations for ratings. Rating Outlooks at the portfolio level are broadly stable and in line with historic averages. However, the positive ratings momentum of 2021 and 2022 seen in many sectors will dissipate this year.