Chief Economists: On Tariffs and In The Media | Tariff Sectoral Impacts | Global Refinancing | Peak Ratings Performance? | Liquidity Outlook 2025

Welcome to the latest edition of Essential Economics! Not surprisingly, we lead with tariffs this week. The Ratings chief economists weighed in on the negative macro effects of the Trump administration’s opening tariff salvo. The team was on the airways again this week as I discussed Davos and the Fed Funds rate forecast with Rui Zhou of Southern Finance, while Asia-Pacific Chief Economist Louis Kuijs talked about tariffs with CNBC TV18 (India).? Our credit analysts look at the impact of recently proposed tariffs on Mexican corporates and the tech sector. Evan Gunter and team report that resurging debt markets retain sufficient capacity to meet upcoming refinancing demands. Our ratings performance team writes that forward-looking indicators are giving mixed signals as downgrades rose in Q4 2024. Finally, Patrick Drury Byrne investigates five questions that could affect liquidity and volatility in the global credit markets in 2025.

Economics Team: Tariff Effects Overwhelmingly Negative

The Trump administration has moved quickly to propose new tariffs on goods imported from Canada and Mexico, and additional tariffs on goods imported from China. The Ratings economics team found the potential effects of the tariffs are overwhelmingly negative: slower growth, higher unemployment and inflation, and a stronger U.S. dollar. The effects on the U.S. are smaller than for trading partners.

The ongoing deal-making mode of the new administration risks complicating long-term decision making by both firms and households.

To read the full report, click here.

Economists in the Media

Louis and I hit the airways this past week. I sat down with Rui Zhou of Southern Finance at the New York Stock Exchange to talk about Davos takeaways and our updated Fed view reflecting the stronger than anticipated finish to 2024. Louis appeared on CNBCTV18 (India) to discuss the escalating trade tensions from an Asia-Pacific vantage point.

To watch my interview, click here.

To watch Louis’ interview, click here.

Tariff Sectoral Impact Deep Dives: Tech, Mexican Corporates

Our sector credit teams have taken a deeper dive into the implications of tariffs for tech products and Mexican corporates:

• Without any product exemptions, the newly proposed tariffs on U.S. imports would cover a broader scope of tech products, representing a higher proportion of overall global IT spending than the tariffs levied during President Trump's first term.
• Should President Trump's suggested 25% tariff become reality, we think the most exposed rated corporate sectors in Mexico would be auto suppliers, metals and mining, oil and gas, agribusiness, durable goods, and alcoholic beverages.

To read the article on tariffs and tech, click here.

To read the article on tariffs and Mexican corporates, click here.

Global Refinancing: Maturities Look Manageable

Evan and team report that resurging debt markets retain sufficient capacity to meet upcoming refinancing demands. Speculative-grade bond and loan issuance last year exceeds annual maturities for each year through 2028. Near-term maturities appear manageable, especially as speculative-grade obligations in 2025 fell by 50% over the past year and investors bid up the price of 'CCC' category bonds that are maturing this year.

Given the uncertainties around inflation and monetary policy, the easing in financing conditions for U.S. borrowers may have stalled.

To read the full report, click here.

Peak Ratings Performance?

Our ratings performance team writes that forward-looking indicators are giving mixed signals as downgrades rose in Q4 2024. Net cumulative rating actions (upgrades less downgrades) improved in 2024 but fell in Q4 due to more downgrades of U.S. issuers. Net bias (positive less negative bias) trends were mixed as well as North America and emerging markets improved while Europe and Asia-Pacific fell.

The banking sector had the highest positive bias in Q4 2024 at 12.6%, overtaking oil and gas from Q3.

To read the chart pack, click here.

Liquidity Outlook 2025

A team led by Patrick investigates five questions that could affect liquidity and volatility in the global credit markets in 2025. These include: tensions between the Fed's dual mandates, net financial outflows pressure in China, new funding options and an increased role for exchange traded funds in private debt markets, and ECB expectations for bank refinancing operations.

As we move into 2025, the macroeconomic outlook remains uncertain, and volatility lingers.

To read the article, click here.

As always, you can find the latest research from the S&P Global Ratings Economics team here.