Baseline Macroeconomic Scenarios for Rated Sovereigns: December 2023 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 the median forecast of various external contributors.

Key highlights include
• Global growth has held up better than expected in 2023. Unemployment remains low across the major economies.
• Due to declining real incomes and the cumulative effects of central bank tightening, the outlook for 2024 is poor. Nonetheless, core inflation is slowing and central bank policy rates appear to have peaked in several of the major economies. Some emerging markets are already beginning to ease.
• Near term risks remain tilted toward the downside, due to financial conditions as well as geopolitical risks and vulnerabilities in commercial real estate markets.

“Although household balance sheets appear to be in strong condition in most advanced economies, an increasing number of households are facing the challenge of lower real income levels and rising debt payments,” notes Thomas Torgerson, Co-Head of Sovereign Ratings at DBRS Morningstar. “We could see a relatively rapid decline in demand for services, particularly travel, as a growing number of households and businesses are forced to retrench.”