S&P Global Ratings has forecasted that most rated banks and insurers will face only moderate changes in their creditworthiness and performance in 2018.
In its recent report, titled “Global Financial Services Outlook 2018: Uncomfortably Numb,” S&P said it expects most regions to experience continuing global economic growth and stable financial conditions, as it maintains its still-cautious stance that the major central banks will remain supporting factors for financial services in 2018.
"However, we also see increasing downside risks to financial stability, perhaps belying the sanguine signals that markets are currently sending," said Alexandre Birry, S&P Global Ratings credit analyst and report co-author.
Birry said that despite geopolitical uncertainty and a potential reduction in the size of central banks' balance sheets, there has been a spike in asset prices and a numbing of market volatility – which could have been caused by the considerable monetary stimulus over a protracted period.
All of which prompts the question of whether monetary tightening by central banks – even gradual – or other political events, such as Brexit or trade protection, could trigger unexpected market volatility and bring the preparedness of insurers and banks to the test. In such cases, S&P Global said its base expectations would be threatened and would put pressure on ratings.
"On the upside, if the global economy grows at or beyond the 3.7% pace, S&P Global's economists currently expect, the odds of considerable instability would certainly diminish," Birry said.
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