Credit managers say delinquencies are on track to increase across four continents

According to a survey by the International Association of Credit Portfolio Managers, credit defaults are set to rise in North America, Europe, Asia and Australia, as the risk of a global recession increases.

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(Bloomberg) – Credit defaults are on track to rise in North America, Europe, Asia and Australia, according to a survey by the International Association of Credit Portfolio Managers, as the risk of a global recession increases.

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The economic crisis is expected to occur later this year or in 2023, according to the survey. Until then, North American consumers and businesses are protected by ample liquidity from cash injections during the Covid-19 pandemic and historically low interest rates.

“There is growing recognition that the Federal Reserve will take action on rates even if it will affect the economy,” said Som-lok Leung, executive director of the IACPM. “The defaults are currently at a low, but that will change as the year progresses.”

Members of the New York-based industry group expect a significantly higher number of defaults in 2023 and 2024. Although defaults have not yet increased significantly, credit spreads are already widening. Investment grade spreads have widened over the past three months and 75% of survey respondents believe they will continue to do so.

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IACPM members say they will pay particular attention to sectors including leveraged lending, commercial office space, healthcare, senior housing and small businesses that do not have scale flexibility or other sources of liquidity.

European members of the group fear that the risk of recession is particularly high in Europe, at least for the next few months, due to Russia’s war in Ukraine. The invasion causes a number of disruptions, with the energy sector being the most severe, affecting oil and natural gas supplies.

“Europe will almost certainly burn more of its financial resources for energy supplies than other parts of the globe and industrial disruption in Europe is a clear possibility,” Leung said. “It may be a little silver lining, but if European economies do fall into recession, the pain could at least be somewhat mitigated by lower interest rates.”

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