The global credit risk outlook is broadly unchanged since the last quarter with major uncertainties related to US tariffs and trade policy, the sustainability of benign market and funding conditions, geopolitical risks, and fiscal/economic policy volatility remaining, according to the latest report by Fitch Ratings.
The report, which looked at global risks, said that secular transitions from the development of transformational AI technologies and the growth in funding through private channels remain additional sources of uncertainty. An AI valuation correction and sovereign debt market risks remain potential sources for broader capital markets volatility.
In addition, there are emerging macro-economic risks including a US overheating scenario and a deepening contractionary trend for Chinese fixed capital investment that points to potential downside to Fitch’s China forecasts. China’s continuing fixed capital investment contraction has underscored regional and global macro risks from the country’s domestic demand slowdown.
Fitch’s base case for the global economy and credit is broadly benign, with the ratings and credit resilience at the global portfolio level in 2025 set to continue in 2026. As outlined in its December Global Economic Outlook, Fitch Ratings’ expects marginally decelerating economic growth in 2026 with global real GDP growth falling to 2.4% from 2.7% in 2025. China is a notable exception, where the continued slowdown in domestic demand, including both consumption and capital investment, should bring a more material deceleration to 4.1% from 5%.
China’s economy is facing an investment decline unprecedented in its modern era alongside a multi-year housing market contraction, weak household consumption and broad-based deflation. The sudden fixed investment contraction that began in Q3 2025 could be linked to the ‘anti-involution’ campaign intended to curb intense pricing competition in select industrial sectors.
“We expect the contraction to be temporary and fixed investment to return to positive growth in 2026. However, uncertainty over this policy and over how China’s major trade partners may respond to the country’s export resilience amid US tariffs means that there are risks of a prolonged contraction. This would not only have effects domestically within China, but also regionally and globally, notably by weighing on commodities demand,” said Fitch.
Deteriorating sector outlooks outpace improving ones by five to one
Despite global credit’s resilience in 2025 and the agency’s baseline 2026 outlook, the risk environment remains significant. Of the roughly 25% of sectors that have not been assigned a ‘neutral’ outlook by Fitch, the large majority have ‘deteriorating’ outlooks, at a ratio of about five to one relative to those with ‘improving’ outlooks.
“Deteriorating sector and asset performance outlooks do not necessarily signal a negative ratings bias. But the substantial imbalance between ‘deteriorating’ and ‘improving’ points to an unsupportive operating environment for a material number of sectors and that the risk bias remains skewed negative. This could also mean that a negative risk scenario will have a greater effect on the credit fundamentals for issuers already facing deteriorating conditions,” the ratings agency said.
“Our 2026 outlook analysis identified four ‘deteriorating’ cross-sector themes, including China’s domestic demand slowdown, US consumer pressures, US tariff volatility and Canada’s macro challenges. For each of these themes, there are several sectors assigned ‘deteriorating’ 2026 sector and asset performance outlooks. Notably, these are sectors where we expect deteriorating conditions even under our base-case expectations.”