Baseline Macroeconomic Scenarios for Rated Sovereigns: June 2023 Update

In this commentary we provide an update to DBRS Morningstar’s Baseline Macroeconomic Scenarios.

Key highlights include:

-- Economic data continues to show resilience amid tighter financial conditions. Forecasts for 2023 continue to improve, while expectations for 2024 are generally worsening as projected slowdowns are pushed further out into the future.
-- While a mild advanced economy recession will likely have a limited impact on rated sovereigns, the risk of a deeper downturn in 2024 cannot be fully discounted.
-- Core inflation pressures remain elevated, but central banks appear increasingly comfortable slowing the pace of interest rate hikes.

“Evidence of financial stresses is likely to increase from the current historically low levels,” cautions Thomas R. Torgerson, Co-Head of Sovereign Ratings at DBRS Morningstar. “If central banks are forced to tighten further to curb inflationary pressures, or if other adverse shocks materialize, we could see a deeper downturn during 2024.”