Threat of Rising Tariffs is Impacting Outlook

Up to Three Quarters of Respondents to Latest IACPM Credit Outlook Survey Forecast Rising Corporate Defaults in North America, Europe and Asia As Trade Woes Bite

New York, NY – Two thirds to three quarters of respondents to the latest IACPM Credit Outlook Survey expect corporate defaults to increase globally over the next 12 months. Three quarters see rising defaults in North America and Europe, while two thirds forecast a higher default rate in Asia. Overall, the aggregate default index, which includes the outlook for consumer and commercial real estate debt, as well as corporates, is minus -56.2 compared to negative -45.4 last quarter. The change in this case means more people are expecting higher defaults now than they were previously, at the end of the second quarter.

“Survey respondents are increasingly seeing signs of a slowdown in the global economy,” commented Som-lok Leung, Executive Director of the International Association of Credit Portfolio Managers. “They’re not calling for a recession but rising tariffs, or at least the threat of them, are impacting the outlook for growth next year.”

Economic sectors impacted by trade difficulties, according to survey respondents, include agriculture, energy, manufacturing and transportation. Interestingly, most of the signs of a slowdown have come relatively recently, perhaps as a result of corporate treasurers lowering their forecasts as they budget for next year. The latest Purchasing Managers Index, for example, shows a decline in the manufacturing sector in September compared to August as that index dropped to 47.8% from 49.1%.

Further clues about the economy and credit markets emerge from the forecast for three month credit spreads in the latest IACPM survey. A majority of survey respondents expect high yield credit spreads to widen, while the forecast for investment grade spreads is much closer to neutral. The index reading for North American high yield spreads is minus -42.9 compared to negative -11.4 for investment grade securities. The result for European high yield is minus -32.0 versus negative -12.0 for investment grade.

“The survey is telling us people are much more concerned about riskier or smaller companies, than they are about bigger or more well capitalized ones,” said Mr. Leung. “Larger companies have a bigger buffer that can protect them in a downturn, at least initially.”

Survey respondents are also paying close attention to the Brexit process which could come to a head at the end of the month. Nevertheless, in forecasting higher defaults in Europe, respondents say Brexit is not playing an obvious role. Economic weakness in Germany appears to be getting much more attention, at least for the moment, as that country confronts trade woes, negative interest rates and the lack of an economic stimulus program due to significant legal and political restraints.

The Credit Outlook Survey is conducted among members of the IACPM, an association of more than 100 financial institutions in over 20 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 higher defaults and wider spreads.

Please click here> to access a selection of aggregate survey data.

The full aggregated survey results will be published with a 6 months time lag in the members only section of our website. Please click here> to access prior quarters’ survey results.


The IACPM, with over 100 member institutions located in 20 countries, is a professional association dedicated to the advancement of credit portfolio management. The organization’s programs of meetings, studies, research and collaboration are designed to increase 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.