2016 seems to be headed towards being a year when rating agency – Fitch Ratings, handed over the most number of sovereign downgrades even while there is over more than three months to go till the end of the year.

This major rating agency has so far cut down sovereign ratings of some twenty countries this year. This number so far in 2016 is the most since Fitch started record keeping in 1994 and it is equal to the al time record for Fitch which happened in 2011.

Added to the number of downgrades is the number of countries that are poised on a “negative outlook”. According to Fitch, “negative outlook” is the situation when a country is at risk of downgrade, ad so far this year, this number is more than those economies with a “positive outlook”. Belgium, Japan and the U.K. are on negative outlook by Fitch, for example, among economies that are placed in the developed markets.

Despite low funding costs, unfavorable debt dynamics were faced by developed countries, particularly European ones, Fitch’s head of sovereigns said at a conference in London on Tuesday.

The challenges for countries like U.K., France, Spain, Portugal, Italy, Greece and Canada are facing was highlighted by James McCormack. He said that these countries faced challenges to repayment of debt as the real gross domestic product (GDP) growth in these economies was lower than the real effective interest rate. On the other hand, the economies of Japan, the U.S., France, Spain and the U.K. also have primary deficits. The difference between government revenue and expenditure, minus interest payments is defined as the fiscal deficit or the primary deficit.

McCormack said issues like that high levels of migration and security concerns, “austerity fatigue” and euroskepticism  –  were among the challenges that are being faced by Europe. Euroskepticism is the criticism of the European Union or membership of the euro zone.

Meanwhile, after its vote to leave the European Union in June, a weaker growth outlook and prolonged legal and regulatory uncertainty is posing a challenge for the U.K. Immediately after the referendum, the country was downgraded to AA with negative outlook from AA+ by Fitch.

“It is very clear that the U.K. government has done no effective contingency planning for Brexit,” Ed Parker, Fitch’s head of Europe, Middle East and Africa sovereigns, said at the conference.

Russia and Turkey are included in the major emerging market countries that Fitch has on negative outlook. Following an unsuccessful military coup, Fitch revised its outlook on Turkey last month. In the first six weeks of 2017, Turkey’s rating would be reviewed, it said on Tuesday.

Turkey’s economy had shown a “significant degree of resilience” since the failed coup, said Paul Gamble, Fitch’s head of Emerging Europe sovereigns.

“There are clearly long-term spending pressure coming from military spending and refugees,” he however added.

(Adapted from CNBC)

Categories: Economy & Finance, Uncategorized