New risks, new opportunities

GLOBAL credit conditions in 2026 are likely to be shaped less by the usual business cycle and more by tectonic shifts in politics, finance and technology.

The year ahead, according to Moody’s Investors Service, will likely be one where traditional drivers of credit risk share the stage with new pressures from artificial intelligence (AI), climate extremes and evolving governance norms.

The ratings agency highlights these trends in its latest global credit outlook, offering a detailed map of where risks may rise and where opportunities could emerge.

It notes, for instance, that political polarisation is emerging as a major influence on credit risk.

“Rising voter dissatisfaction with mainstream political parties and globalisation’s effects are fostering more of an inward-looking policy stance across major economies,” Moody’s notes.

Governments are responding with increasingly transactional foreign policies, and domestic policy is more fragmented than in previous years.

In the United States, for instance, partisan divides and legislative gridlock are reshaping how credit conditions are set, with executive orders on tariffs, migration and industrial policy becoming prominent levers.

Meanwhile, China continues to pursue strategic consolidation, emphasising domestic stability and technological independence.

For the European Union, rising defence commitments and delayed structural reforms mean debt issuance could rise significantly, with €550bil potentially added by 2030 if most spending is debt-financed.

Moody’s warns that this political uncertainty is likely to weigh on growth and elevate credit risks, even if markets have yet to fully price them in.

Private credit

The credit landscape is also being reconfigured by non-bank finance.

Private credit has exploded in the past decade, moving from a niche tool for middle-market companies to a major competitor and collaborator with traditional banks.

Moody’s observes that the market could reach US$3 trillion in assets under management by 2028, with recent figures already placing it above US$1.5 trillion.

Its flexible financing is critical for sectors underserved by banks, from infrastructure to climate adaptation.

But the rapid expansion comes with caveats: rising inter-connection with traditional banks, the potential proliferation of payment-in-kind loans, and a crowded market could amplify stress if conditions deteriorate.

Technology and AI remain a wild card for credit dynamics.

Investment in advanced chips and data centres continues apace, driven by optimism over AI’s transformative potential.

Moody’s notes: “Assuming model performance and adoption plateau after 2025, we expect most benefits to be captured by heavily digitalised, data intensive sectors.”

In that scenario, credit gains are modest outside tech-heavy industries.

But continued breakthroughs could broaden the benefits to consumer products, automotive and telecommunications, reshaping competitive hierarchies and influencing credit outcomes across the economy.

The rating agency also flags risks from overcapacity, high capital costs and rapid technological change, all of which could strain margins and investor expectations.

Climate change adds another layer of uncertainty.

Extreme weather events are becoming costlier and more frequent, shifting credit risk across households, corporates and governments.

In 2024 alone, economic losses from disasters hit US$318bil, including US$137bil in insured losses. Insurers in advanced economies are reacting by raising premiums or limiting coverage, potentially transferring risk to property owners and public finances.

Moody’s highlights that “under-insurance, especially for flooding, poses a growing credit risk for some state and local governments in the east and south of the United States.”

Governments are investing in adaptation, including green bonds and flood-defence infrastructure, but in emerging markets spending remains far below the estimated US$387bil needed annually.

New measures

Policy responses, regulation and infrastructure development will determine how credit conditions evolve.

Measures such as stricter building codes, zoning rules and climate-resilient urban planning offer some mitigation, but political and fiscal constraints may limit their impact.

Meanwhile, the rise of local funding markets, stablecoins and tokenised assets is expanding access to capital, but inconsistent regulation and governance weaknesses pose new risks.

The interplay between technological innovation, non-bank finance, and climate adaptation is thus increasingly central to credit analysis.

Despite these headwinds, Moody’s expects global macroeconomic conditions to remain broadly stable.

Following Group of 20’s growth of 2.6% in 2025, it anticipates 2.5% in 2026 and 2.6% in 2027.

Inflationary pressures are likely to ease gradually, allowing some policy rate cuts where possible, but global trade remains uncertain and policy unpredictability could weigh on investment and creditworthiness.

As the agency observes, political polarisation, technological disruption and climate extremes are poised to be the main drivers of credit dispersion next year, rather than the ups and downs of the business cycle.