Moody's says outlook for global sovereigns in 2018 is stable

Rating agency says risks to outlook include heightened geopolitical tension

Moody's Investors Service said that its outlook for global sovereigns in 2018 was stable overall due to the likely continuation of synchronized global economic expansion but that increased geopolitical tensions posed a risk.

"The benign state of the global sovereign credit environment is reflected in the fact that almost three-quarters of Moody's-rated sovereigns currently hold a stable rating outlook while the increasingly solid momentum in growth balances against the continuing risks from high debt levels as well as from elevated geopolitical tensions," said Alaistair Wilson, Moody's managing director for global sovereigns.

In total, 102 out of 137 sovereigns that are rated by Moody's have a stable outlook, 13 have a positive outlook and 22 have a negative outlook. That compares to 35 sovereigns that had a negative outlook last year.

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The International Monetary Fund said in its closely watched global economic outlook last month that the global economy was showing signs of increased health. The IMF boosted its forecasts for global growth for this year but said that many countries were plagued by lackluster productivity as evidenced by weak inflation.

The IMF said that it expected global GDP to advance by 3.6 per cent in 2017 and 3.7 per cent in 2018, a 0.1 percentage point increase for both years from its July forecast.

The risk of domestic political uncertainty and social tensions undermining commitment to economic and fiscal reforms were among the risks to global sovereign credit worthiness cited by Moody's. Another is the high level of public debt, it said.

"While benign economic conditions lower the risk posed by high debt levels, few sovereigns have much, if any, fiscal space to respond to shocks," Mr Wilson said.

Heightened geo-political risk, from concerns over the possibility of a conflict in the Korean peninsula, escalating tensions in the Arabian Gulf and ongoing tension between Spain and Catalonia, were also cited by the rating agency as a risk to credit worthiness.