As we look ahead to next year, four key trends, reflecting both short and longer-term structural shifts, will influence credit quality. Here we outline our baseline expectations for these trends and which sectors and geographies are most likely to be affected and why.

» Finding macro normal. The global economy has seen significant shocks in recent years, including the COVID-19 pandemic, war in Europe and a massive surge in inflation. If President-elect Trump enacts all of the policies he talked about while campaigning, further disruption is likely in 2025. But even if that happens, the effects of past shocks will fade; and if US (Aaa negative) policies are not as disruptive as feared, we will see some normalisation in the global economy. That will be most evident in rate cuts aided by lower inflation, which will help with issuers' refinancing needs, boost cash flows and reduce asset quality risks. 

» Geopolitical tensions. Efforts by governments and businesses to diversify their supply chains have strengthened their resilience to US-China (A1 negative) tensions and ongoing military conflicts. But the unpredictable nature of geopolitical developments will lead to further shocks which businesses and policymakers will need to respond to, adding costs. 

» Digitization and disruption. Transformational technologies like artificial intelligence (AI) and blockchain will continue to attract substantial levels of investment next year. But excluding select firms, profits are still hard to come by and some companies might use up resources without significant benefits, at least in the near term. Other disruption comes from the rapidly growing private credit market, which is vying to become a one-stop financial shop but is less regulated and is raising concerns about transparency. Increasing union activity, changing government policies and regulatory intervention are other challenges businesses will need to deal with next year.

» Global transitions. Despite an expected shift the direction of US climate policy, cost reductions in clean technologies, geopolitical competition in new areas and the growing costs of extreme weather events will continue to drive investment into climate mitigation and adaptation next year, especially from China. But the spending needed to close the climate financing gap is huge and returns are uncertain. Companies and governments will also need to manage the growing fiscal and economic costs of ageing; and sociopolitical conditions in advanced economies suggest that immigration cannot be counted on to offset the effects