S&P warns of possible trebling of U.S., European default rates

LONDON (Reuters) – Credit rating firm S&P Global (NYSE:) has warned that speculative-grade U.S. and European corporate default rates are likely to double and might even treble next year as rising borrowing costs take their toll.

The firm estimated that the “trailing-12-month default rates” in the U.S. and Europe would reach 3.75% and 3.25% respectively by September, more than double the 1.6% and 1.4% in September 2022.

With so much depending on the length, breadth and depth of a potential global economic downturn, however, S&P added that “pessimistic forecasts for default rates of 6.0% and 5.5% aren’t out of the question”.

“We expect credit ratings to deteriorate, as credit fundamentals – for many corporates and some sovereigns – erode further”, S&P’s 2023 outlook report said.

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