(Bloomberg) — Moody’s Ratings is boosting its forecast for defaults this year as escalating trade wars globally are increasingly likely to weigh on economic growth and make financing harder to get.
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The credit-grading firm said it now sees the default rate for speculative-grade companies reaching 3.1% by the end of the year, compared with its prior expectation of 2.5%. If that forecast materializes, it would still amount to a decline in the default rate from the year prior, but Moody’s says it wouldn’t take a major negative shock for the rate to rise instead, possibly to as high as 6%.
Credit strategists across the globe have ripped up their 2025 outlooks and now see risk premiums widening and growth subsiding. The Moody’s estimates are based on the assumption that tariffs will cut at least one percentage point off US growth and also weaken other economies, the report’s authors including Sharon Ou wrote in a report dated Wednesday.
That will worsen financing conditions for borrowers and make investors more risk-averse.
In the first quarter, there were 27 defaults, down from 38 in the same period last year. More than half of the first quarter’s defaults came from sectors including healthcare; business services; retail; hotels and leisure; and telecommunications.
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