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Sovereign Ratings in 2021: Year in Review

DBRS Morningstar released a Sovereign Rating Review for 2021, covering rating actions taken between January 1 and December 15, 2021. The review is in the form of a digest for easy navigation, and includes a brief summary of regional developments. For each sovereign government rated by DBRS Morningstar, the digest shows the rating trajectory during 2021, the last rating action, the last rating/trend change, and our current rating drivers. Also, it includes a list of research commentaries produced by the global sovereign ratings group.

Following last year's COVID-19 recession global growth is expected to reach 5.9% in 2021 and 4.9% in 2022. Most advanced economies are seeing activity gradually return, due to fiscal support and to the development and deployment of effective vaccines, and the recovery is expected to continue through 2023. However, the recovery is uneven, with output still below pre-pandemic levels in many emerging economies. The global recovery also faces some headwinds, including lingering supply and demand disruptions and emerging price pressures. Additionally, the risk of new variants of the virus is still elevated, though high vaccination rates have contributed to lower mortality rates.

A few rating actions worthy of note:

• As of December 15, four of DBRS Morningstar’s sovereign ratings have positive trends (Ireland, Cyprus, Greece, Uruguay). These countries are seeing a resumption of stronger economic growth and have also taken steps to strengthen the public sector balance sheet. In addition, the stronger than expected recoveries and ongoing balance sheet repair have resulted in upgrades in Latvia, Lithuania, and Greece.

• Our two downgrades, India and Colombia both from BBB to BBB (low), reflect material deteriorations in public finances that were exacerbated by the pandemic.

• The North American economies retain a high degree of resilience, but we expect medium-term fiscal challenges to persist, particularly for the United States.

• The trend on Mexico's rating was returned to Stable from Negative due to the government's commitment to fiscal sustainability, although future growth prospects remain dim.

• In China, domestic concerns about the property sector have generally outweighed the impact of the pandemic in 2021, but risks remain sufficiently counterbalanced by economic and policy buffers.