US and China continue to be the top credit ratings to keep an eye on in 2024.

LONDON (Reuters) – 2024 may mark significant changes in several sovereign credit ratings due to the U.S. and China being on downgrade alerts, Turkey expecting to receive an upgrade after a ten-year hiatus, Israel facing its first drop, and more than fifty elections to be managed.

Although the percentage of “stable” sovereign ratings may begin 2019 with the greatest level in years, major players are involved due to record debts that are now meeting rising borrowing costs, sputtering economy, and several wars.

The two largest economies in the world, China and the United States, are both viewed negatively by Moody’s. The US would lose its lone surviving triple-A rating in the event of a downgrading.

According to Marie Diron of Moody’s, the country is watching to see if China can halt the worsening of its property and local government debt problems, and if Washington can solve a threatened “very steep deterioration in debt affordability”.

As the presidential election in November draws near, Fitch, which downgraded the US in August, and S&P Global are also keeping a careful check on things.

Ed Parker of Fitch stated, “Many of the factors we pointed to with the (U.S.) downgrade remain in effect,” elaborating on how rising interest rates, defence spending, and an ageing population would all contribute to the continued rise in U.S. debt levels.

In addition to projecting a “hypothetical stress scenario” in which the property sector and other issues drive China’s economy to collapse to just 1.5% and only rebound to 2% in 2025, Fitch predicts that the country’s growth will drop to 4.5%–5%.

Given China’s wider advantages, Parker stated that “we wouldn’t expect more than a one-notch move,” but a downgrading would be likely in such a scenario.

In the meantime, Turkey might have its first upgrade in more than ten years if President Tayyip Erdogan’s

Oman may be upgraded to investment-grade as long as the new finance minister and head of the central bank continue their efforts to improve policies.

Turkey’s municipal elections in March, according to Moody’s Diron, will gauge how committed the government is to

If Oman’s bonds were to achieve investment-grade status, they would be added to the global fixed income indexes that pension funds use as a shopping list. Analysts estimate that this would result in inflows of up to $3 billion, which would lower Oman’s borrowing costs.

As S&P’s Frank Gill noted, “At the end of the day they are still very sensitive to the price of oil but tax revenue as a percentage of GDP is now over 31%, which is notable for a resource-driven economy.” Oman has been upgraded for the past two years.

Panama, on the other hand, appears to be most in danger of turning into “junk” when it passes through the

arduous process of closing one of the largest copper mines in the world, which contributes about 5% of its GDP.

Morgan Stanley has predicted that there will be a downgrade in May, when elections are scheduled, and

At BBB, Fitch appears most likely to pull the trigger due to its pessimistic forecast.

Parker of Fitch stated, “It is one where we have been flagging some negative developments.” “It will certainly be an interesting credit for 2024.”

Due to its massive debt, Italy will continue to be watched closely, while Spain, Germany, and election-bound

Britain’s GDP expenditures are still at least 4% higher than they were before COVID-19.

Additionally, S&P anticipates deciding whether to downgrade France from AA. “We are likely to resolve it (France’s rating decision) by the end 2024,” Gill stated. Expected to remain at about 110% in the upcoming years, debt-to-GDP “we are looking to see if they produce more

financial adjustments.

Meanwhile, Israel’s conflict with Hamas may lead to its first-ever decline in ratings.

While Fitch and Moody’s have issued their most urgent downgrade warnings—”rating watch negative” and “rating under review”—both might potentially deliver cuts in the coming month or two, S&P has a negative outlook.

Iran-aligned Houthi militants in Yemen are currently targeting ships that are headed towards Israel in the Red Sea.

Parker of Fitch stated that there is a “huge amount of uncertainty how long the war will go on for, or what comes after”.

S&P’s Gill stated that although Israel has $200 billion in foreign exchange reserves, which more than cover all of its international debt, the country’s deficit is now expected to be between 5 and 5.5 percentage points of GDP this year and next.

Gill stated, “It could move for sure.” “But we are talking about a transition from AA- to A+.”

(Catherine Evans provided editing)