2023 Sovereign Outlook: Policies Matter

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 UK 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, this commentary provides our 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.”

“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,” said Nichola James, Co-Head of Global Sovereign Ratings at DBRS Morningstar. “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.”