The U.S. and China remain the top credit ratings to watch in 2024. 2024 may mark significant changes in several sovereign credit ratings due to the U.S. and China being on downgrade alerts, Turkey expecting to receive an upgrade after a ten-year hiatus, Israel facing its first drop, and more than fifty elections to be managed.

Although the percentage of “stable” sovereign ratings may begin 2019 with the most significant level in years, major players are involved due to record debts now facing rising borrowing rates, a sputtering economy, and several wars.

The two largest economies in the world, China and the United States, are both viewed negatively by Moody’s. The U.S. would lose its lone surviving triple-A rating in the event of a downgrade.

According to Marie Diron of Moody’s, the country is watching to see if China can halt the worsening of its property and local government debt problems and if Washington can solve a potential “very steep deterioration in debt affordability.”.

As the presidential election in November draws near, Fitch, which downgraded the U.S. in August, and S&P Global are also keeping a careful check on things.

Ed Parker of Fitch stated, “Many of the factors we pointed to with the (U.S.) downgrade remain in effect,” elaborating on how rising interest rates, defense expenditure, and an aging population will all contribute to the continued rise in U.S. debt levels.

In addition to projecting a “hypothetical stress scenario” in which the property sector and other issues drive China’s economy to collapse to only 1.5% and rebound to 2% in 2025, Fitch predicts that the country’s growth would drop to 4.5%–5%.

Given China’s broader advantages, Parker stated that “a downgrade would be likely in such a scenario,” but “we wouldn’t expect more than a one-notch move.”. Suppose President Tayyip Erdogan’s new finance minister and central bank head continue policy-mending efforts. In that case, Turkey may get its first upgrade in almost a decade, and Oman may be upgraded to investment grade.

According to Moody’s Diron, the local elections in Turkey in March will test the authorities’ willingness to maintain interest rates above 40%. However, if they do so and foreign investors begin to come back, “that would point to positive momentum.”.

PANAMA, ISRAEL, AND OMAN

If Oman’s bonds were to achieve investment-grade status, they would be added to the global fixed-income indexes that pension funds use as a shopping list. Analysts estimate this would result in inflows of up to $3 billion, lowering Oman’s borrowing costs.

As S&P’s Frank Gill noted, “At the end of the day, they are still susceptible to the price of oil, but tax revenue as a percentage of GDP is now over 31%, which is notable for a resource-driven economy.” Oman has been upgraded for the last two years.

On the other hand, Panama is most vulnerable to falling into “junk” while going through the arduous process of closing one of the largest copper mines in the world, which accounts for around 5% of its GDP.

According to Morgan Stanley, a downgrade is anticipated in May when elections are scheduled, and Fitch is most likely to carry out the reduction at BBB with a negative outlook. Parker of Fitch stated, “It is one where we have been flagging some negative developments.” “It will certainly be an interesting credit for 2024.”

Italy’s massive indebtedness will make it a target for inspection, while election-bound Britain, Germany, and Spain continue to spend at least 4 percent of GDP more than they did before on COVID-19.

Additionally, S&P anticipates deciding whether to downgrade France from A.A. “We are likely to resolve it (France’s rating decision) by the end of 2024,” Gill stated. Since the debt-to-GDP ratio is anticipated to remain at about 110% in the upcoming years, “we are watching to see if they deliver additional fiscal reforms.”.

Meanwhile, Israel’s conflict with Hamas may lead to its first-ever decline in ratings. While Fitch and Moody’s have issued their most urgent downgrade warnings—”rating watch negative” and “rating under review”—both might potentially deliver cuts in the coming month or two, S&P has a negative outlook.

According to Fitch’s Parker, there is a “huge amount of uncertainty about how long the war will go on or what comes after,” since Yemen’s Houthi rebels, linked with Iran, are currently assaulting ships that are headed toward Israel in the Red Sea.

S&P’s Gill stated that although Israel has $200 billion in foreign exchange reserves, which more than cover all of its international debt, the country’s deficit is now expected to be between 5 and 5.5 percentage points of GDP this year and next.

Gill stated, “It could move for sure.” “But we are talking about a transition from A.A. to A+.”