S&P Global is predicting a rough year for banks, forecasting nearly $850 billion in credit losses globally in 2025. This is despite a generally improving global economy.
A Trillion-Dollar Headache?
While the overall outlook for the banking sector seems stable – with most banks maintaining stable ratings – S&P Global expects a 7% increase in credit losses from bad debts. They warn that this number could be even higher if several economic factors turn negative.
Economic Headwinds
The report highlights several potential problems:
- Slowing Economic Growth: A slower economy puts more pressure on borrowers.
- Inflationary Pressures: Resurgent inflation could further squeeze borrowers and disrupt markets.
- Political Uncertainty: Political instability and polarization can create market volatility.
US-Specific Concerns
S&P Global points to uncertainty in the US as a significant risk. Potential policy changes, particularly the possibility of higher tariffs, could reignite inflation. This, in turn, might force the Federal Reserve to reverse its course on monetary easing, impacting credit quality. While a “soft landing” is anticipated for the US economy, the potential for higher tariffs presents a major risk.
The Bottom Line
Despite a generally positive economic forecast, S&P Global’s prediction of substantial credit losses underscores the inherent risks in the global financial system. The path to improved credit conditions is expected to be challenging, with various economic and political factors posing significant threats.
