Tariffs and Slower Growth Challenge Global Structured Finance

Fitch Ratings' latest report highlights concerns over global structured finance performance amid slower economic growth and elevated tariffs. While many ratings maintain stability thanks to deleveraging, sectors in North America and Europe face challenges, particularly for subprime and SME borrowers. Inflation, labor market shifts, and tariff uncertainties further exacerbate risks.

The global structured finance sector is feeling the squeeze from subdued economic growth and the aftershocks of elevated tariffs, according to Fitch Ratings' new report. These pressures are particularly pronounced in asset classes supported by weaker borrowers.

Despite the challenges, a Stable Outlook persists for most ratings, buoyed by deleveraging and robust structural safeguards. However, 38% of outlooks for 2025 are deteriorating, notably in North America. In particular, the U.S. and Canada face declining performance in subprime loan sectors amid inflationary and labor market hurdles.

While low rates and steady job markets bolster European assets, SMEs and non-prime borrowers remain exposed to macroeconomic stresses. Predictions indicate rising defaults in U.S. and European CLOs, with tariff-related uncertainties adding to the risks. Meanwhile, the resilience in Australia and New Zealand contrasts with strains in Chinese and Latin American markets, where arrears are expected to increase.

(With inputs from agencies.)