Economic Weather Warning | EM Exposure to Slower China | APAC Energy Transition | US State Budgets | 2022 Issuance Forecast

Welcome to an action-packed edition of?Essential Economics! Our coverage of the effects of the Russia-Ukraine conflict continues as related ratings actions pass 200. We kick off this week with climate risk as a cross-divisional team looks at country-level economic losses from physical risk and finds South Asia to be most exposed. Fellow economists Elijah Oliveros and Vishrut Rana measure the impact of a sharp China slowdown on emerging markets. In Asia-Pacific, Abhishek Dangra and an infrastructure team take a deep dive into the region’s uphill climb to a cleaner energy future. US Public Finance analyst Jillian Legnos and team show rising revenue surpluses at the state level but see slower growth ahead. Finally, credit researcher Nick Kraemer updates his 2022 #issuance forecast after a rocky first quarter and now sees a 5% decline this year.

Ongoing S&P Global coverage of the Russian Invasion of Ukraine

The S&P Global “Ukraine Under Attack” page follows fast-evolving market developments resulting from the Russian invasion. It is continually updated with the latest insights from all our divisions, including Ratings, where we have taken over 200 rating actions related to the conflict.

To access all of S&P Global’s content on this issue, click here.

Weather Warning: Economic Losses from Physical Climate Risk

A cross divisional team undertook an exploratory scenario analysis of the vulnerability and readiness of 135 countries to climate change over the next 30 years. Physical climate risks could expose 3.3%, 4%, and 4.5% of world GDP to losses by 2050 under climate pathways RCP2.6, RCP4.5, and RCP8.5, respectively.

Our vulnerability assessment finds that regional impacts from climate hazards differ and are most pronounced in South Asia, and is high for Central Asia, Middle East and North Africa, and Sub-Saharan Africa.

To read the full report, click here.

Emerging Market Exposure to a China Slowdown

Elijah and Vishrut note that a sharper-than-expected slowdown in China remains a key risk to growth for emerging markets (EMs), but its impact would depend on the drivers of such slowdown, as well as the ensuing policy reaction. EM Asia is most at risk from weakening consumption in China.

If the Chinese government responds to COVID-19-related weakness with more spending on infrastructure, emerging markets that supply metals to China, such as Chile, Brazil, and South Africa, would likely benefit.

To read the full report, click here.

Asia Pacific’s Uphill Energy Transition

?Abhishek and team argue that Asia-Pacific's energy transition will be an uphill journey. China and Indonesia's policy-led energy transition will contrast with private sector-led renewable investments in India and Australia.

Massive capital expenditure into renewables will stretch the balance sheets of rated utilities and could cause downside rating pressure for companies that are slow to transition or that adopt more aggressive leverage.

To read the full article, click here.

US State Budgets: Revenue Surpluses but Slow Growth Ahead

Jillian and team show that most U.S. state budgets are benefiting from recent strong revenue collections although national economic conditions will likely temper, slowing fiscal 2023 revenue growth. Many states are responding to surplus revenues by either pursuing tax rate reductions or building reserve accounts while few are choosing to address long-term pressures.

States must focus on long-term structural budget balance to preserve credit quality as economic growth slows.

To read the full report, click here.

Global Bond Issuance Now Projected to Decline 5% in 2022

Nick reports that the first quarter 2022 was marked by increased market volatility given increasing rate hike expectations for the Federal Reserve and unknowns from the Russia-Ukraine conflict. With rates continuing to rise, we expect global bond issuance to contract 4.9% this year, with risks tilted to the downside given heightened uncertainties.

The main risk to our forecast remains the possibility that the Fed responds too aggressively in fighting inflation and rattles markets.

To read the full report, click here.