Fitch Ratings in its latest bi-annual Sovereign Review and Outlook said the global sovereign ratings on track for a record number of downgrades in 2016. Fitch noted that the impact of lower commodity prices in emerging market economies continue to be the single most important factor responsible for downward sovereign ratings momentum.
There were 15 downgrades in the first half of 2016 compared with the previous annual high of 20 in 2011, and 22 ratings are on Negative Outlook. Seven of the 10 most commodity-dependent sovereigns rated by Fitch have been downgraded in 2016 or are on Negative Outlook. Fitch expects this year's final total is likely to exceed that of 2011.
Fitch believes that Europe's political backdrop post the developments in UK could have negative implications for sovereign ratings, as fiscal consolidation may drop further down the list of policy priorities. Several eurozone sovereigns have comparatively high government debt levels, which are likely to remain effective rating constraints.
In the US, Fitch recently revised down its US GDP growth forecasts, while Latin America is headed for its second consecutive year of contractions as it faces subdued commodity prices, weak external demand and tighter external financing conditions. Larger government deficits and tepid growth combined with currency depreciations are contributing to rising government debt. The Middle East and Africa region account for more than half of the negative rating actions in the first half of 2016 and 10 of the 22 Negative Outlooks assigned currently.
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