New York, NY – Amid considerable uncertainty in light of continuing geopolitical concerns and especially following 2024 elections, particularly in the United States, respondents to the latest IACPM Credit Outlook Survey are forecasting rising defaults and wider credit spreads. The 12 month Credit Default Index fell to minus -42.8 in the current reading from negative -30.4 in the previous survey taken at the beginning of last October. The three month Credit Spread Index is minus -48.6 in the latest survey compared to negative -23.3 in the last survey.

“Geopolitics are the top concern for our members as they look ahead to 2025,” commented Som-lok Leung, Executive Director of the IACPM, or International Association of Credit Portfolio Managers. “They’re still focused on inflation and global central bank activity but the last election cycle clearly added new factors to the mix.”

Bankruptcies have started to increase in the US with S&P Global reporting corporate bankruptcies have reached a 14-year high. In Europe, survey respondents say they haven’t seen a significant rise in bankruptcies yet but, during annual reviews of borrowers, they are seeing credit deterioration in a number of firms.

“Higher interest rates are taking a toll, along with lower demand,” said Mr. Leung. “Our members are seeing concerns in virtually every industrial sector and are expecting increased defaults in every region of the world, from the US and Europe to China and Australia.”

Survey respondents hope interest rates will continue to decline but they note some new policies under discussion, such as tax cuts in the US, could stimulate eco-nomic growth and increase the possibility of higher inflation. Such a scenario, in turn, could lead to higher interest rates or, at least, a slowdown in rate declines.

“Our members hope there is a continued economic soft landing,” said Mr. Leung, “but geopolitical issues could make that more difficult.”

Another development survey respondents are watching is the possibility of even higher tariffs being imposed on exports. The auto industry is already under pressure from higher interest rates and higher car prices. Increased tariffs would pose an additional challenge. For example, China leads the world in electric vehicle production and higher tariffs would only hit car sales even harder.

“One of our members noted Chinese EV sales in Europe, as well as globally, would be vulnerable because customers are already having trouble affording new cars,” said Mr. Leung.
Perhaps not surprisingly, survey respondents believe credit spreads will widen over the next three months. They also note, though, spreads were expected to widen after the elections last fall. So far, however, that really hasn’t happened.

“It may take some more time,” noted Mr. Leung. “But, at this stage, market instability is something to consider and that could push spreads out.”

The Credit Outlook Survey is conducted among members of the IACPM, an association of 154 financial institutions in 32 countries around the world. Members include portfolio managers at many of the world’s largest commercial banks, investment banks and insurance companies, as well as a number of asset managers. Members are surveyed at the beginning of each quarter.

Survey results are calculated as diffusion indexes, which show positive and negative values ranging from 100 to minus -100, as well as no change which is in the middle of the scale and is recorded as “0.0.” Positive numbers signify an expectation for improved credit conditions, specifically fewer defaults and narrower spreads, while negative numbers indicate an expectation of deterioration with high defaults and wider spreads.
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About IACPM

The IACPM, with 154 member institutions located in 32 countries, is a professional association dedicated to the advancement of credit portfolio management. The organi-zation’s programs of meetings, studies, research and collaboration are designed to in-crease awareness of the value and the function of credit portfolio management among financial markets worldwide, and to discuss and resolve issues of common interest to its members.