Economic News

Political deadlock in Germany and France limits the prospect of implementing reforms proposed by the Draghi report, which, together with Southern Europe’s productivity gap, challenges Europe’s growth outlook.

Political uncertainty, a challenging fiscal outlook, and the rising divergence in funding conditions between France and other core euro area sovereign borrowers underscore the importance of political stability.

The German government is maximising the modest leeway it has under the debt brake to inject public funds into the economy, but the measures are insufficient for addressing large and widening investment gaps.

The proportion of Italian sovereign debt held by foreign investors, a less stable source of demand than the ECB and residents, is rising and will make Italy more susceptible to changes in market sentiment.

Egypt’s public finances remain vulnerable to external shocks given the government’s limited fiscal space, though external support, higher foreign direct investment and progress on reforms are improving resilience.

A hung parliament in France mitigates risk of significant fiscal slippage due to the policy agendas of the far right or radical left. Still, reform momentum will likely stall given the need for compromise.

The Labour Party won a landslide victory in Thursday’s UK general elections but long-run challenges will endure, including dealing with rising debt and reviving the economy while hitting fiscal targets.

France’s planned consolidation of its public finances risks being deferred, considering the likely outcomes of legislative elections, with consequences for the EU policy agenda and, potentially, investor sentiment.

Higher-for-longer rates heighten the stakes for sovereign debt sustainability especially as financial-market and institutional checks on the borrowing of rich countries are weaker than they were several years ago.

A sustained period of higher interest rates will present a challenge for many borrowers worldwide, as economies adapt to a new era of comparatively tight monetary policy amid a recovery in growth and enduring inflation.

South Africa faces a period of greater political fragmentation and reduced governability, adding pressure in the face of rising economic, social and fiscal challenges that need to be addressed by the next government.

The challenges of dealing with rising debt and gradual de-dollarisation, which might both accelerate after this year’s presidential election, constitute growing pressure points for the sovereign rating of the US.

The UK likely faces rising public debt after coming general elections, given a lack of priority to change policy. Even though the UK benefits from significant debt tolerance, rising debt poses a long-term rating risk.

Italy’s government needs to devise a credible medium-term fiscal consolidation plan to stabilise public debt given challenges of high interest costs, excessive past tax incentives, and delays in recovery plan spending.

Euro area governments unable to put in place consistent medium-term fiscal plans face credit-rating pressure even though reducing public borrowing is possible including for highly indebted countries, says Scope Ratings.

After five years of near-zero cumulative growth since the pandemic, Germany’s recovery is unlikely to accelerate without policy reform and an increase in net investment, supported by its significant fiscal space.

A full-scale Middle East conflict is unlikely but any further escalation of tensions would have significant adverse consequences for commodity markets and inflation, affirming geopolitical developments as a core economic challenge globally.

Japan’s sovereign Outlook was revised to Stable from Negative by Scope Ratings on 22 March due to higher inflation and its positive effects on debt sustainability.

The setback for Türkiye’s ruling AKP in local elections could support a continued restrictive monetary policy as persistent high inflation, an important economic weakness, was a key driver of the electoral outcome.

France faces important fiscal, social and political hurdles to finding additional savings in the next four years, challenging the execution of its medium-term fiscal consolidation strategy ahead of 2027 elections.