Global structured finance (SF) risks are set to increase in 2025 due to slower economic growth and shifting US policies, according to Fitch Ratings. Sectors tied to vulnerable borrowers or exposed to policy changes are expected to be hit hardest, with the agency planning updates to its asset performance forecasts in the coming weeks. Despite rising downside risks, most SF ratings maintain Stable Outlooks, with only around 6 per cent carrying Negative Outlooks or Negative Watches at the end of the first quarter. However, Fitch warned that Negative Outlooks could soon outnumber Positive ones. Notably, the agency's April 16 update to its Global Economic Outlook downgraded 2025 growth projections for most major economies, particularly the US and China. Slowing growth, persistent inflation, and higher unemployment are expected to weigh on consumer assets, especially non-prime and unsecured loans, while commercial mortgage-backed securities (CMBS), small- and medium-sized enterprises (SMEs), and corporate borrowers may face mounting pressures. Elevated interest rates and trade disruptions could hit sectors with refinancing exposure and supply chain dependencies, such as CMBS, collateralised loan obligations (CLOs), solar ABS, and transport-linked ABS. Aircraft ABS and hotel CMBS could also suffer from weaker travel demand. However, strong asset values in used cars and homes may cushion some impacts. Fitch highlighted that credit erosion may take time to materialise in securitised assets but warned that failing operational counterparties could pose immediate risks. Changes in government policies, particularly cuts to subsidies and guarantees, could further destabilise asset performance and ratings. Currently, 63 SF sub-sectors have neutral performance outlooks, 17 are deteriorating, and two are improving. Attribution: Amwal Al Ghad English Subediting: M. S. Salama
