Sovereign Ratings in 2022: Year in Review

DBRS Morningstar released a Sovereign Rating Review for 2022, covering rating actions taken between January 1 and December 15, 2022. The review is in the form of a digest for easy navigation, and includes a brief summary of regional developments. For each sovereign government rated by DBRS Morningstar, the digest shows the rating trajectory during 2022, the last rating action, the last rating/trend change, and our current rating drivers. Also, it includes a list of research commentaries produced by the global sovereign ratings group.

A confluence of challenges have taken their toll on the global economy in 2022. The International Monetary Fund (IMF) estimates, global growth slowed to 3.2% in 2022 from 6.0% in 2021, due in part to the Russian invasion of Ukraine, China’s growth challenges, and the significant tightening of monetary policy. Looking ahead, risks to global growth are tilted to the downside, due to the possibility of an intensification of the energy crisis, further worsening of geopolitical tensions, lingering supply and demand disruptions, and continuation of price pressures.

A few rating actions worthy of note:
-- As the adverse effects of the pandemic faded, five sovereigns were upgraded due to the continuation of stronger growth and improved public sector balance sheets: Ireland, Cyprus, Greece, Portugal, and Uruguay. However, the weaker growth outlook for 2023, the continuation of the conflict in Ukraine and the ongoing energy crisis have resulted in a stabilization of rating trends. At present, none of DBRS Morningstar’s sovereign ratings have positive trends.

-- Three credits in Europe have seen downward rating pressure. These include the rating on Belgium which was downgraded (AA) given budgetary pressures and high government debt relative to peers. The trend on Slovakia (A [high]) was revised to Negative due to the growth outlook and the rising risk of energy supply shortages, which could weigh on the government’s fiscal rebalancing strategy.

-- Unexpected developments in the U.K. have resulted in the rating (AA [high]) being placed Under Review with Negative Implications. This rating action reflects risks to the fiscal outlook, concerns about the inconsistency between fiscal and monetary policies that led to a large sell-off of UK assets, and potential risks to the U.K.’s financial flexibility.

-- In Asia, downward pressures have thus far affected only China (A [high]). The Negative trend on China reflects expectations of a weaker macroeconomic performance for the Chinese economy in the medium term, due to continued property sector weakness, China’s ageing demographics, and heightened U.S.-China tensions. These factors could have structural implications for the country’s economic prospects and weigh on government finances.