Baseline Macroeconomic Scenarios For Rated Sovereigns: June 2022 Update

This commentary provides an update to DBRS Morningstar’s Baseline Macroeconomic Scenarios. 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:

• 2022 growth projections have deteriorated in recent months, driven by consumer, business and official policy responses to rising geopolitical tensions and inflation pressures.

• High inflation is unlikely to dissipate quickly, even if interest rate hikes are successful in slowing demand growth.

• Some key risks include a cutoff of energy supplies to Europe, the impact of rising interest rates on property and asset prices in North America, and an increase in geopolitical tensions in the Middle East or Asia.

“Geopolitical tensions resulting from Russia's invasion of Ukraine do not appear likely to ease any time soon,” notes Thomas Torgerson, Co-Head of Sovereign Ratings for DBRS Morningstar. “With the prospect of a prolonged conflict, energy and food supplies remain vulnerable and prices are likely to remain elevated.”