Fitch downgrades outlook for global sovereigns to 'deteriorating'

Fitch Ratings changed the outlook for the global sovereign sector in 2026 from "neutral" to "deteriorating" due to the impact of the US-Israeli war against Iran.

"We expect the conflict to weaken GDP growth, increase inflation and bond yields, and heighten geopolitical risks. However, the recent resilience of the global economy and financing conditions mitigate risks," the credit rating agency said on Monday (8).

Even with the most pessimistic view globally, Fitch considered that most Latin American sovereigns appear well positioned, due to favorable initial macroeconomic conditions, policy buffers and, in some cases, terms of trade benefits.

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Another resilience is Greater China, which saw the only improvement in outlook, moving to "neutral" - as robust exports support growth and deflation appears to be ending. Crude oil stocks, domestic refining capacity and diversified energy sources buffer Greater China from the energy shock.

Strong AI-related exports support many Asia-Pacific sovereigns, but that region's economies are highly energy-intensive and dependent on oil and gas imports through the Strait of Hormuz, according to Fitch.

Most GCC (Gulf Cooperation Council) sovereigns benefit from solid balance sheets, supported by alternative export channels, or prospects for additional support. However, the impact on the security and business environment will be long-lasting.

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Geopolitical risks remain high in Eastern Europe due to the war in Ukraine, Russian hybrid activity and tensions between the US and other NATO members.

Higher energy prices are weakening the economic and inflationary outlook in developed markets, increasing pressures on public finances.

"Given weaker starting positions, we expect budget support in Western Europe to be lower than in 2022-2023. The One Big Beautiful Bill Act will reduce US tax revenues, widening this year's general government deficit to 7.9% of GDP," Fitch projected.

*Content translated with the help of Artificial Intelligence, reviewed and edited by the Broadcast editorial team, Grupo Estado's real-time news system.

Source: CNN