Baseline Macroeconomic Scenarios for Rated Sovereigns March 2022 Update

DBRS Morningstar has released a commentary updating our Baseline Macroeconomic Scenarios for Rated Sovereigns. These 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 credit ratings.

Key highlights include:

• Baseline forecasts have deteriorated in recent months, but the overall outlook for growth and employment remains strong.

• Risks are multiplying with the Russian invasion of Ukraine, and the potential for new COVID-19 variants.

• Rising inflation is another key challenge that complicates the outlook and increases the risk of policy errors by central banks.

“The economic and financial impact of the Russian invasion of Ukraine could intensify in a variety of ways,” cautions Thomas R. Torgerson, Co-Head of Sovereign Ratings at DBRS Morningstar. “If the global environment prolongs and propagates additional price shocks, we could ultimately see a period of low growth with high inflation. This could subsequently lead to larger interest rate hikes as central banks seek to rein in inflation expectations.”