Thursday 7 July 2016 1:26 pm

World on course for record number of debt downgrades

This year will see more downgrades to government credit ratings than ever before, one of the top sovereign debt calculators has predicted.

Fitch said 15 countries have already had their credit score slashed, and another 22 are on course for a downgrade if they do not swiftly improve their economic outlook.

This puts the world on track for more downgrades than during the previous record year of 2011, when fears over a debt contagion in the Eurozone triggered a wave of cuts.

While the slump in commodities prices was the overriding reason for the downgrades that have already occurred, the UK’s vote for Brexit could trigger problems across Europe during the rest of the year, Fitch said.

Credit ratings are a signal to international investors of how safe a country is to lend to, and normally correlate to how much interest governments have to pay to their creditors.

Read more: Should we worry about the UK losing its AAA credit rating?

“Lower commodity prices continue to be the single most important factor responsible for downward sovereign ratings momentum,” Fitch said in a note today.

It added: “The significance of the UK’s pending exit from the EU is difficult to understate”.

The UK recently had its credit rating slashed by all three of the top ratings agencies, who warned further downgrades would be likely if political and economic uncertainty does not evaporate.

Fitch said: “Developments in the UK make it more probable that populist or Eurosceptic movements find greater support elsewhere in the EU, providing added impetus for political fragmentation and polarisation trends.

“Europe’s political backdrop could have negative implications for sovereign ratings, as fiscal consolidation may drop further down the list of policy priorities.”