KUALA LUMPUR: Moody's Investors Service (Moody's) said the outlook for global credit conditions this year has turned more negative amidst slower global growth, rising borrowing costs, surging prices for energy and commodities, supply-chain disruption and increased financial market volatility.
In a report today, it said the surge in energy and food costs spurred by the invasion of Ukraine is weakening the purchasing power of households, raising input costs for companies and dampening investor sentiment.
"Among sovereign debt issuers, debt sustainability will be especially challenging for many frontier market sovereigns as borrowing costs keep rising while their economies still have not fully recovered from the pandemic crisis," said credit strategy managing director Elena H Duggar.
Still, credit fundamentals remain generally healthy for higher-rated debt issuers, as credit metrics recovered in 2021 and liquidity remains strong overall, she said.
However, for speculative-grade issuers with low free cash flow and a high portion of floating-rate debt, debt affordability, liquidity and refinancing risks are rising.
She added that as central banks start to raise interest rates in response to high inflation, financial market conditions are tightening across continents.
Meanwhile, Moody's proprietary regional Financial Condition Indicators -- composite measures of financial and economic activities -- have been showing a steady tightening of financial conditions since February.
It noted that currently, financial conditions across the United States, United Kingdom, the Euro area and emerging markets were less favourable than historical averages, and will continue to tighten as interest rates climb.