Donald Trump in an interview with Newsmax/ screenshot
Moody’s has unveiled a striking list of Four Risks to Watch in 2025, signaling a potentially game-changing year for the global credit landscape. While the macroeconomic horizon appears to be leveling, lurking threats could shatter this fragile equilibrium. Grasping these looming disruptors will be essential for steering through the uncertainties of the year ahead. And the second Donald Trump presidency tops the list.
The first is significant shifts in U.S. policy under President Donald Trump—such as potential trade tariffs, tax cuts, and changes to immigration policies—could drive up inflation and interest rates. These developments may pose challenges for both domestic and emerging market issuers, potentially reshaping the economic landscape.
“Although institutional constraints and market reaction will likely temper more radical policy action, putting sweeping tariffs in place, removing millions of undocumented migrants and pushing through further tax cuts would lead to a significant and sudden increase in inflation in the US (Aaa negative),” said Moody’s. “Assuming the Federal Reserve (Fed) responds to higher inflation by raising rates, this would be damaging for domestic issuers, particularly lower-rated firms, but also externally, for instance for emerging market issuers. If Trump tries to influence the Fed, that would damage institutional credibility.”
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Then there are heightened security risks in Europe. A potential withdrawal of U.S. assistance to Ukraine, coupled with rising defense expenditures, could drive up risk premia and escalate debt burdens for European governments. These factors may undermine market confidence and threaten the region’s economic stability.
Escalating Middle East tensions is another issue. Prolonged conflict between Israel and Iran could disrupt global energy supplies, leading to higher oil prices, weaker economic activity, and increased inflation, said Moody’s.
Moody’s also cited market volatility and risk appetite collapse. If investor sentiment sours, asset prices may plummet, credit spreads widen, and economic disruption could ensue, potentially leading to a wave of defaults among companies needing to refinance their debt.
“The current combination of high valuation measures and relatively low volatility already suggests that markets may not be placing enough weight on downside scenarios,” said Moody’s. “If investor sentiment turned acutely negative across a range of financial markets, then asset prices would fall, credit spreads increase, and there would be significant economic disruption as a result. We would see more defaults as issuers with refinancing needs struggled to cope with higher refinancing costs.”
