Absent an unforeseen shock to the global economy, credit rating activity will be much more subdued this year, said Moody’s Investors Service.
In a new report, the rating agency said that most economies likely won’t fully return to their pre-pandemic levels until next year, but that the credit challenges created by the pandemic will prove to be relatively short-lived.
“We don’t expect rating actions this year to match the pandemic-driven activity in 2020,” said Colin Ellis, chief credit officer at Moody’s, in a release.
“Our current ratings and outlooks already incorporate the effects of the pandemic and associated support from policymakers. We continue to expect a slow and bumpy recovery, but volatility around the gradual recovery path is unlikely to be enough to materially affect creditworthiness by itself,” he added.
Most of the credit challenges for 2021 will be focused on the sectors that are severely affected by pandemic-related restrictions, Moody’s said.
At the same time, the rating agency noted that leverage has been significantly impacted by the Covid-19 crisis.
“While asset prices and debt issuers’ market access have largely recovered from the shock, leverage metrics have shifted more permanently. This is particularly evident for sovereigns, some of which have spent unprecedented sums to fight the pandemic and shore up economic activity,” the agency said.
These higher leverage levels represent “significant medium-term risks,” Moody’s said, but it doesn’t expect defaults to spike again in the near-term.