Baseline Macroeconomic Scenarios For Rated Sovereigns December 2021 Update

This commentary provides an update to DBRS Morningstar’s Baseline Macroeconomic Scenarios. DBRS Morningstar's baseline scenarios provide our estimate of the current market consensus, and are drawn from a simple median calculation across various external contributor forecasts. We also explore some noteworthy risks to the baseline scenarios, and briefly discuss some potential implications for DBRS Morningstar's ratings.

When our baseline scenarios were last published 3 months ago (September 8, 2021), external forecasts already reflected expectations of a gradual recovery. Median forecasts for 2021 have been revised upward, as high frequency data from Q3 and Q4 showed stronger growth than anticipated. Revisions to 2022 growth projections have been mixed, reflecting continued uncertainty regarding output gaps, the evolution of the pandemic, and the prospect of tighter monetary conditions. With this update, we have added 2023 forecasts as well, which generally assume that growth will moderate toward long-term trends. We expect recent COVID-19 developments, particularly the new Omicron variant with subsequent restrictions, combined with rising inflation pressures in some regions, to dampen near-term growth expectations in coming months. However, we expect the baseline projections will continue to point to an ongoing, gradual recovery.

“The response to Omicron may dampen the economic outlook in the near term,” notes Thomas Torgerson, Co-Head of Sovereign Ratings at DBRS Morningstar. “At present, we view these risks as contained and unlikely to derail the global economic recovery as consumers and businesses continue to adapt and learn to live with the risks.”