Global Credit Conditions Expected to Weaken Significantly in Year 2027

Moody's Ratings projects weakening global credit conditions by 2027, driven by high borrowing costs and energy prices. While major economies will expand, firms with high debt loads and refinancing needs face significant financial pressure.

Global Credit Outlook for 2027

Global credit conditions are expected to weaken in 2027 as higher borrowing costs and elevated energy prices put pressure on companies and governments, particularly those with high debt and significant refinancing requirements, according to a report by Moody's Ratings.

The report said that while major economies are expected to continue expanding, the combination of rising financing costs, energy expenses and slower growth in artificial intelligence (AI) investment could create pockets of financial stress across sectors. "Credit conditions will weaken going into 2027," Moody's said, adding that the impact would vary depending on borrowers' debt levels, cash flows and exposure to refinancing risks.

Refinancing and Market Pressures

The pressure is expected to be particularly visible among companies refinancing debt raised during the low-interest-rate period. More than 60 per cent of global high-yield bonds maturing between 2027 and 2029 were issued during 2019-21, when borrowing costs were lower. Moody's said new high-yield bonds are now being issued at rates roughly 100 basis points above those on the debt they will replace.

The report, however, does not expect a broad increase in speculative-grade default rates. Companies with strong cash flows, sufficient liquidity and lower debt are expected to be better placed to manage higher interest expenses. Private credit markets could also face pressure as lending standards tighten and investors become more selective. Moody's said greater reliance on payment-in-kind interest, maturity extensions and other measures to preserve liquidity indicate that stress is building in parts of the market.

AI Investment and Government Intervention

AI investment is expected to remain substantial, with capital spending by major US technology companies approaching USD 1 trillion in 2027. However, its growth is expected to slow, reducing the additional support it has provided to credit quality. "The test for 2027 is whether returns begin to meet expectations," the report said, noting that productivity and earnings gains needed to justify current AI spending are not yet visible at scale.

Moody's also identified greater government intervention through tariffs, export controls and regulation as a factor that could reshape investment and competition. At the same time, spending on energy security, critical minerals, defense and infrastructure resilience is expected to raise costs for several industries.

The report said borrowers with long-term debt, strong cash flows and limited exposure to energy costs or policy changes would be better positioned, while highly leveraged entities and those facing near-term refinancing needs could come under greater pressure.

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