Consider Credit--Fundamental Ratings Monthly Briefing June 2025

Morningstar DBRS published the June 2025 edition of "Consider Credit--Fundamental Ratings Monthly Briefing." It includes a Credit Rating Actions Dashboard and a description of our recent and anticipated credit rating considerations across Sovereigns, Financial Institutions, and Corporate Finance.

Credit Rating Considerations include:

-- The extent and duration of the sudden oil price increase following the airstrike exchange between Israel and Iran will depend on the variables of the conflict. Ultimately, higher oil prices exacerbate tariff-related headwinds to the global economy and to oil demand.
-- Most of our sovereign credit ratings are navigating the current set of geopolitical and other policy-related risks without clear damage to credit fundamentals. That said, there have been credit impacts on sovereigns that already were less well-placed within their ratings assessments.
-- The pace of downgrade activity within our middle market ratings portfolio has continued to accelerate in the second quarter of this year and the share of defaulted issuers is sharply up compared with a year ago.

This month's featured topics are military spending related:

-- "The upcoming decision to raise military expenditures to 5% of GDP likely by 2030, by comprising also 1.5% of GDP in investment in infrastructure and production capacity, will likely boost GDP growth. Estimated real GDP level could be around 1.5%-1.6% higher by 2030 for France, Spain, and Italy, although fiscal deficits also will be higher," said Carlo Capuano, Senior Vice President, Global Sovereign Ratings. See page 5 for more commentary, in the section on An Updated Analysis on Military Spending Impact on Selected Sovereigns.

-- "As NATO's defence spending targets look set to rise, it seems increasingly likely that EU banks will need to shoulder some of this burden, whether through taxes, deposit schemes or increasing channeling of public funds to the sector," said Arnaud Journois, Senior Vice President, European Financial Institution Ratings. "While the structure of defence projects remains very complex and subject to significant legal risk, we think recent announcements at the European and national levels are leading to less reluctance from banks to help finance defence spending". See page 5 for more content.

-- "We do not see sovereign credit ratings implications for Germany's AAA, Stable credit rating from the projected increase in defence spending and the accompanying widening in fiscal deficits in coming years," said Yesenn El-Radhi, Vice President, Global Sovereign Ratings. "The government's debt affordability is likely to remain very high over the medium-term, underpinned by a low interest burden, a still moderate stock of public debt and the country's status as a safe haven. See page 6 for more details.

Catch up on these topics and more thought leadership from across the Fundamental Ratings teams and around the globe in this month's edition.