For the past two and a half years (10 consecutive quarters), upgrades to countries’ credit risk ratings outnumbered downgrades. Now, a major shift is underway: upgrades no longer dominate, and downgrades are increasingly affecting advanced economies. In the latest Allianz Trade Risk Review for Q2 2025, net changes in sovereign and sector risk ratings are balanced — five upgrades and five downgrades — marking a clear turning point in global risk trends.
From Developed to Emerging Markets: A Shift in Resilience
One of the most significant developments is the declining resilience of high-income economies, which now face growing fiscal and political pressure. The United States, France, and Belgium all saw their sovereign risk ratings downgraded from AA1 to A1. Meanwhile, emerging markets like Argentina, Nigeria, and Peru are showing signs of cautious recovery. Argentina and Nigeria were upgraded to C3, and Peru to B1.
For exporters, this may signal both the necessity and greater ease of diversification, as emerging markets now appear more stable than some mature economies.
Country Risk: High-Income Nations Face Mounting Pressure
- United States: Downgrade reflects worsening fiscal metrics — budget deficits, public debt, and interest payments have all deteriorated. With interest costs soaring and no clear path to fiscal consolidation, the federal deficit could exceed 8% of GDP by 2026. Political risk has also risen due to volatile trade and foreign policy decisions.
- France: Persistent fiscal weakness and a likely budget deadlock over the 2026 fiscal plan are increasing medium-term risks. Despite government plans to reduce the deficit to 5% of GDP, spending on defense and social needs will likely challenge these targets.
- Belgium: Fiscal vulnerabilities are deepening due to stalled structural reforms, high public spending, and weak coordination between federal and regional governments. Belgium now holds its lowest rating in over three decades.
Bright Spots Among Emerging Markets
Despite ongoing challenges, several emerging economies are showing measurable improvement:
- Argentina: In April 2025, the IMF approved a $20 billion Extended Fund Facility, including an initial $12 billion disbursement. President Milei’s reforms have reduced inflation to 2.8% monthly, generated fiscal surpluses, and reignited economic activity. The country is regaining market confidence and access to capital markets.
- Peru: Strong 2024 growth (+3.3%) was driven by primary sectors, robust consumption, and public investment. Despite a 3.5% fiscal deficit, low public debt and high FX reserves keep fundamentals healthy. Growth is expected to moderate in 2025 but remain resilient.
- Nigeria: Orthodoxy in monetary policy and exchange rate liberalization have stabilized external accounts. FX reserves now cover 3.5 months of imports. Energy subsidies were scrapped, and public debt metrics are improving. However, inflation remains above 20%, and political risks persist.
Meanwhile, Albania, Suriname, and Mauritius also saw risk rating adjustments. Albania and Suriname were upgraded. Botswana and Mauritius, however, faced downgrades due to pressure on diamond exports and fiscal strain from weaker-than-expected revenues, respectively.
Sector Risk: Automotive Industry Under Strain
In sectoral risk ratings, Q2 2025 marks the third consecutive quarter of net deterioration:
- 16 downgrades vs. 12 upgrades
- Downgrades mainly hit the automotive sector, reflecting weak demand, tariff uncertainty, and fierce price competition. Ten downgrades were concentrated in transport equipment, particularly for carmakers and suppliers in:
- Mexico (to high risk)
- Japan, South Korea, Ecuador (to sensitive risk)
- Germany and Finland
Automakers are caught in a “perfect storm” of:
- Weak consumer demand
- Price wars
- Reduced public subsidies
- Trade tensions, especially in the U.S. and China
- Regulatory tightening in emissions and data
Japanese and Korean manufacturers are especially vulnerable to U.S. market dynamics, while Mexican suppliers face exposure due to tightly integrated supply chains. European firms must also contend with sluggish macroeconomic conditions and aggressive competition from Chinese brands.
Other Sectoral Downgrades
- Agri-food (Panama)
- Electronics (Hungary)
- Machinery (South Africa)
- Paper (Colombia)
- Metals (Japan)
- Pharmaceuticals (Mexico)
Upgrades Were Concentrated In:
- Transport equipment (France, Chile, UAE)
- Software and IT services (Czech Republic, Malaysia – low risk; Colombia – medium risk)
- Construction (Spain, Ireland)
- Retail (Chile, Colombia)
Global Sector Risk Landscape
- 54% of sectors now fall into low or medium risk, maintaining a relatively stable global risk outlook.
- Medium risk sectors represent 45% of the total, unchanged quarter-over-quarter.
- Sensitive risk sectors represent 43%, a 1-point increase QoQ.
- Only 9% of sectors globally operate under low-risk conditions, down from 15% in late 2019.
Regional disparity remains strong:
- Asia is relatively safe
- Latin America and Central/Eastern Europe are more exposed
Source: CEO.com.pl – Country and Sector Credit Risk in 2025: Trends, Challenges, and Outlook
Data source: Allianz Research – Country and Sector Risk Maps, Q2 2025
