Washington Week Teaser | Supranationals 2024 | Tokenized Private Credit | Floating Rate Debt | Data Centers Suite of Reports

Welcome to the latest edition of Essential Economics! This week we come to you from Washington DC, where the S&P Global Ratings Chief Economists are attending the annual meetings of the International Monetary Fund, World Bank and Institute of International Finance. ?

I share some initial takeaways from a swath of meetings across organizations: soft landing baselines, US outperformance and downside geopolitical risks dominate the discussions. Alexis Smith-Juvelis and team write that multilateral lending institutions' focus on capital optimization continues and that blended finance remains important. Evan Gunter and a cross-divisional S&P Global team report that digital markets and tokenization represent a potential avenue of growth for the rapidly expanding and evolving private credit market. Nicole Serino and team argue that while a global rate-cutting cycle has begun, rates remain at decade-high levels, pressuring some issuers--particularly those with floating-rate debt instruments. Finally, in a suite of reports, our cross-sector teams write that that growth potential is significant for the data center sector, with booming demand stemming from AI and other cloud services.

Washington Week Teaser

Our Washington week is still unfolding, but I can share some initial takeaways. On the macro front, a soft landing scenario has strong support across most participants. Geopolitics is dominating the discussions including ongoing US-China tensions, turbulence around the Middle East and Ukraine, and the results of the too-close-to-call US elections. On the upside, US outperformance is a recurring theme driven by productivity gains related to AI and the energy transition.

The chief economist team plans to publish our complete thoughts early next week.

Supranationals Special Edition 2024

Alexis and team write that multilateral lending institutions' (MLIs) focus on capital optimization continues as the sector works to address recommendations from the G20 following its review of MLIs' capital adequacy frameworks. Blended finance will continue to be an important financing mechanism.

MLI capital assessments remain robust as the sector continues to carefully manage its capital ratios.

To read the full report, click here .

Tokenized Private Credit

Evan and team write that digital markets and tokenization represent a potential avenue of growth for the rapidly expanding and evolving private credit market.?Tokenization could help to address some inherent challenges in private credit, potentially facilitating enhanced liquidity, efficiency, and transparency.?

Use cases remain limited so far, and not without challenges.

To read the full report, click here .

Floating Rate Debt: Still A Concern

Nicole and team report that while a global rate-cutting cycle has begun, rates remain at decade-high levels, pressuring some issuers--particularly those with floating-rate debt instruments. Additionally, primary issuance of floating-rate debt remains strong, and if the descent of interest rates disappoints, it could place increasing pressure on these issuers.

Just over three-quarters of current weakest links have at least one floating-rate instrument.

To read the full report, click here .

Data Centers: A Suite of Reports

In a suite of reports, our cross-sector Ratings teams report that growth potential is significant for the data center sector, with booming demand stemming from AI and other cloud services. We expect this to support rent and overall top-line growth for U.S. data center operators. Projects are increasingly large and numerous, with significant investments and project management as key constraining factors.

We view development, operating, leasing and technology risks as manageable over the next several years.

To read the report on US real estate, click here .?

To read the report on the US power sector, click here

To read the report on gas, click here .

To read the report on challenges around electricity growth, click here .

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