Nearly 40% of structured finance sectors are likely to experience a deterioration in asset performance this year, due to weaker economic conditions and persistent inflationary pressures, according to Fitch Ratings.
In the rating agency's recently published Global Credit Outlook 2025 - Mid-Year Update, it notes that deteriorating global growth linked to higher tariffs, US policy uncertainty and greater geopolitical risk have dimmed the outlook for global credit.
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"This reflects a marked weakening in macroeconomic expectations, with our base case now including major decelerations in economic growth for the US, China and key emerging markets," Fitch says.
In terms of structured finance, the rating agency says slower revenue growth and rising expenses will continue to impact US commercial mortgage-backed securities (CMBS). In addition, weak macro trends will put pressure on asset-based securities (ABS) and residential mortgage-backed securities (RMBS) in China.
Ratings risk has yet to materialize, despite the deteriorating conditions in the large minority of sectors, Fitch says, noting no migration yet of ratings to lower levels or a significant increase in negative rating outlooks. However, it adds, sub-investment grade ratings inched toward a negative net outlook balance in first-half 2025 from being rougly balanced in 4Q 2024.
Robust corporate balance sheets are holding the fort against downside risk from weaker revenue and profitability projections, and leverage forecasts are broadly flat compared to 2024, Fitch says.
"Structured Finance Rating Outlooks are mostly stable, despite expected asset performance deterioration in a large number of sectors, supported by credit-enhancement growth from deleveraging and structural protections," the rating agency says.
How long that stability lasts will depend on how risk factors such as tariffs and inflation unfold, but Fitch sees significant economic deceleration globally. In large part that's due to tariffs, which prior to the Trump inauguration Fitch saw as averaging 8% in 2025, up from 2% last year. Subsequent reciprocal pauses and temporary agreements have elevated Fitch's effective tariff rate forecast to 14%, with its base case assuming the rate increases to nearly 18% in second-half 2025.
Consequently, Fitch expects global real GDP growth to decelerate to 2.2% this year, down from 2.9% in 2024, and US and Chinese growth to fall, respectively, to 1.5% from 2.8%, and to 4.2% from 5.0%. The aggregate growth rate for emerging markets excluding China should slow to 3.1% from 4.0%.
"The Eurozone and Japan are exceptions, where we do not expect growth to fall but to remain relatively lackluster at 0.8% and 0.9%, respectively," Fitch says.
