European credit conditions face an increasingly challenging outlook amid high inflation, market volatility, and rising yields, according to S&P Global Ratings in its latest quarterly credit conditions report, published today: “Credit Conditions Europe Q3 2022: Pain On The Horizon.”
The warnings come against a backdrop of ongoing geopolitical uncertainty and lingering COVID-19 lockdowns in China. After a strong start to the year, we expect eurozone GDP to stagnate for the rest of 2022 at a growth rate of 2.6% for the year and 1.9% for 2023.
S&P Global Rating’s Osman Sattar: “Across Europe, we expect credit conditions to get worse. The war in Ukraine shows no sign of abating and continues to cast a shadow over eurozone economies for the foreseeable future – contributing, in particular, to rapidly rising food and fuel prices and rattling consumer confidence.
“Central banks have been forced to rapidly pivot their rates strategies to weather the inflation storm. Tighter financial conditions will stoke fears over fragmentation within the eurozone and the debt sustainability of more vulnerable sovereigns, while corporates will come under ever greater margin pressure.
“However, despite increasingly challenging conditions, important bright spots remain for now. There is still a high stock of household savings following the pandemic, which provides some buffer to an escalating cost of living. Likewise, we’re seeing high levels of job vacancies and unemployment at multidecade lows, which reduces the risk of companies cutting staff unless the outlook worsens considerably. Company balance sheets also have the benefit of the earlier rebound in activity as the pandemic wanes, and their refinancing risk is also limited in the near term, given that many took the opportunity of ultraloose monetary conditions in recent years to refinance their debt.”