The Global

2023 Morningstar Sovereign Outlook: Policies Matter

Ratings firm sees limited risk of a more abrupt and severe economic downturn in the near term

Recent global market analysis from DBRS Morningstar suggest that ‘full impact of monetary tightening is not yet felt’ and risks still remain. Access the report here.

February 08, 2023– NEW YORK–(BUSINESS WIRE)–The global economic outlook for 2023 remains weak. Most of the major European economies are expected to experience very modest growth, including France, Germany and Italy, while the U.K. is likely to suffer negative growth. North America is similarly at risk of tipping into a mild recession. China’s growth is picking up due to its delayed recovery from COVID-19, and Japan is also seeing growth accelerating. Nonetheless, with global interest rates still on the rise, the conflict in Ukraine continuing, and global supply chains still facing some challenges, DBRS Morningstar presents following outlook for the world economy and for sovereign ratings in 2023:

Key Highlights

  • The economic outlook for 2023 is weak. Recent data are more reassuring, but the full impact of monetary tightening is not yet felt and policies matter.
  • Low unemployment and high net financial wealth support a case for resilience, but several key risks remain.
  • Despite the still uncertain backdrop, we see mainly stability in our sovereign ratings in 2023.

“Although it is too soon to be certain, recent data has been somewhat reassuring, pointing to limited risks of a more abrupt and severe global economic downturn in the near term,” said Thomas Torgerson, Co-Head of Global Sovereign Ratings at DBRS Morningstar. “For most of our advanced country ratings, recent adverse fiscal, debt and economic developments are unlikely to move our ratings significantly in 2023.”

Nichola James, Co-Head of Global Sovereign Ratings at DBRS Morningstar added: “In Europe, the likelihood of several rounds of elections in Greece may cause mild debt market volatility and Italy may experience some political instability, but this Italian risk is more likely to increase with European Parliamentary elections in 2024. We take the view that Greece and Italy, countries with the highest public sector debt ratios in the euro system, will continue to demonstrate a strong commitment to EU fiscal frameworks in the medium term.”

Excerpts From The DBRS Morningstar Global Outlook

  • Global Economic Outlook Remains Weak, Though Recent Data Has Been Mildly Reassuring

North American and European growth slowed sharply during 2022, leaving the 2023 growth outlook significantly worse. Property markets are already weakening in many countries and this could exacerbate the economic downturn. Higher input costs and interest rates could affect a growing share of vulnerable firms, and this could become more widespread and in turn may have a more adverse impact on banks. The full impact of higher interest rates has not yet materialized, and we expect continued retrenchment among firms and households. Despite the mostly weak growth outlook and adverse risks for inflation, several important fundamental factors underpin our view that the global economy may be resilient. Central banks appear to be signaling a slowdown or outright pause in interest rate hikes. Inflationary pressures are easing, thanks in part to a mild winter and efforts to shore up energy supplies.

  • Policies Matter
Although it is too soon to be certain, recent data has been somewhat reassuring, pointing to limited risks of a more abrupt and severe global economic downturn in the near term...

Monetary policy tightening is taking effect. In the US and Canada, monetary authorities have already started to slow the pace of policy tightening as core inflation has started to ease. Meanwhile, Europe’s energy security is strengthened and gas storage levels are high. This has reduced the risk of another inflation spike over the remainder of the winter and suggests inflation expectations are likely to remain anchored. This in turn points to less aggressive monetary tightening by the ECB in the near future, though core inflation may be stickier and is not yet falling in the euro area. The UK is facing a similar situation, with energy prices falling. Headline inflation is estimated to have peaked and the Bank of England is expected to end its tightening cycle by midyear. The slowdown in inflation will start to ease the household spending squeeze.

  • Ratings Stability Likely

Credit fundamentals are weaker and general government debt and fiscal deficits in relation to GDP have deteriorated in recent years. For most sovereigns the deterioration has been manageable in terms of ratings. Moreover, for most of these countries these ratios are already stabilizing or soon set to improve. Turning to our sovereign ratings outlook, for most of our advanced country ratings, recent adverse fiscal, debt and economic developments are unlikely to move our ratings significantly in 2023. Looking ahead at a selection of our quantitative assessments – fiscal management and policy, debt and liquidity and economic structure and performance building blocks, the 2023 implied changes are likely to represent less than one rating notch change.

To read the full report and access the data, click here.




The DBRS Morningstar group of companies consists of DBRS, Inc. (Delaware, U.S.)(NRSRO, DRO affiliate); DBRS Limited (Ontario, Canada)(DRO, NRSRO affiliate); DBRS Ratings GmbH (Frankfurt, Germany)(EU CRA, NRSRO affiliate, DRO affiliate); and DBRS Ratings Limited (England and Wales)(UK CRA, NRSRO affiliate, DRO affiliate). DBRS Morningstar does not hold an Australian financial services license. DBRS Morningstar credit ratings, and other types of credit opinions and reports, are no intended for Australian residents or entities. DBRS Morningstar does not authorize their distribution to Australian resident individuals or entities, and accepts no responsibility or liability whatsoever for the actions of third parties in this respect. For more information on regulatory registrations, recognitions and approvals of the DBRS Morningstar group of companies, please see: