A top credit ratings agency issued a gloomy economic outlook Monday, with a record number of potential downgrades and a dwindling number of upgrades. Standard & Poor's latest released its potential upgrades and potential downgrades, with potential downgrades heavily outweighing potential upgrades.
According to the report, there were only 292 potential upgrades in May, the lowest number since September 2004. At the same time, the number of potential downgrades soared to a record 738 in May.
"There has been a continuous decline in the total count of potential bond upgrades since July 2007, the beginning of disruptions in the credit markets," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "We expect that the deceleration in potential bond upgrades this month will likely diminish further as factors that support upward momentum weaken."
There were 14 fewer potential upgrades than in April, and 103 less than the same time last year. On the flip side, there were 25 more downgrades than in April, and 118 more than this time last year.
The subprime mortgage crisis roiled the financial markets, sparking a series of downgrades, especially within the real estate and financial sectors.
"By sector, mortgage institutions recorded the highest ratio of issuers with a negative bias relative to their total rated universe, followed by forest products and building materials," Vazza said. "This is unsurprising given the deterioration in the housing markets."
In terms of 12-month averages, May's upgrades sit 70 below the trailing 12-month average.
The report added that the credit deterioration is the chief reason for the decline in upgrades, a trend that has taken root in Europe as well as the United States, S&P said. However, other areas of the world, most notably Latin America, Eastern Europe, the Middle East, Africa, and Canada, remain fairly stable.
The report also cautioned that, as housing prices plunge and energy prices soar, consumers will be less likely to throw discretionary income around. Specifically, the report cites media, entertainment, and other consumer products as at risk for credit deterioration.
For comments and feedback: editorial@rttnews.com