(Yicai Global) Feb. 3 -- Moody’s has a negative outlook on the world’s sovereign credit rating this year, meaning it will be more difficult this year than last year for many countries to manage their debt, the managing director of global sovereign risk at the US credit rating agency told Yicai Global in a recent exclusive interview.

This year governments around the world will have very difficult choices to make between meeting the needs of societies battered by the pandemic and other setbacks while trying to maintain fiscal policy and keep debt levels moderate, Marie Diron said. Geopolitical turmoil is also a concern and it makes it difficult for businesses in particular to plan for the future.

Excerpts from the interview are given below:

Yicai Global: What risks will global sovereign credit face this year?

Marie Diron: We regard the outlook for sovereign credit this year as negative. A number of elements contribute to that. One is there is a general slowdown in growth due to potential recessions in advanced economies, slow growth in emerging markets, interest rates working through the economy, and as inflation erodes purchasing power.

Governments around the world have to make really difficult policy choices between satisfying the social demands of people hit by consecutive, severe shocks and maintaining fiscal policy in order to try to reduce the deficit and keep debt at moderate levels. There are also geopolitical considerations. We believe geopolitical risks have an impact on sovereign credit risks. Hot spots in the world contribute to this uncertainty, and it is very difficult for corporates in particular to invest and plan for the future.

All of this combined create a very difficult environment for sovereign credit.

YG: If we look at Europe in particular, are there any specific economies or markets you are watching closely this year?

MD: We have a negative outlook for the sovereign credit ratings of the Czech Republic and Slovakia. Because of their exposure to energy, their economies rely on energy-intensive industries and they are more exposed to this.

YG: What will inflation be like this year in Continental Europe and also in the UK?

MD: We expect inflation to continue to fall as long as energy prices stay around current levels. The base effect will diminish inflation. But in terms of purchasing power, wages are unlikely to match the inflation rate. Which means households and maybe companies in some sectors are unable to pass on the costs.
 

YG: How will the strike in the UK affect its economy? The International Monetary Fund recently predicted that the UK will be the only major economy to have a recession this year.

MD: We have a similar point of view as the IMF. The strike in the UK will definitely hinder its economic activities. Strikes mean the UK government has failed to satisfy people’s demands. Given the policy signals, the UK government is inclined to prudent fiscal policies, but it is difficult to tell what action the UK government will take.

Editor: Kim Taylor