According to S&P Global’s remarks, it anticipates that a USD 15 billion facility from Abu Dhabi and the UAE Central Bank will be rolled over, along with a loan from Emirates NBD and bilateral and syndicated facilities.

S&P Global stated that it does not anticipate further debt issuance for the deficit financing over the next two years because it projects fiscal surpluses from 2024–2027.

The projections do not, however, account for debt financing for the USD 35 billion Al Maktoum Airport expansion project or the USD 8.2 billion Tasreef rainwater drainage network project, which was approved following significant flooding in April.

Additional listings could provide the government with additional liquidity after the listing of government-related entities (GREs) like Empower, Parkin, and Dubai Taxi, according to S&P Global.

According to S&P, the real estate and tourism industries should aid in deleverage and lower rollover risks, even though the liabilities resulting from the GREs burden public finances.

However, it also stated that the public sector’s fiscal sustainability may be impacted by the relatively high GRE debt and its possible rise.

The agency projects real GDP growth in Dubai to be close to 3% on average between 2024 and 2027, after a 3.3% growth in 2023. Thus far, the effects of geopolitical tensions have been minimal.

As per S&P Global, which cited the Dubai Land Department, the emirate witnessed a 37% increase in value and a 45% increase in real estate transactions in the second quarter of 2024.

Since the absorption depends on the emirate’s population growth and demand trends, there is a risk of oversupply.

However, the ratings agency projected price stabilisation from 2025–2026, when a large supply of pre-sold properties will be delivered.

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Surveys showed that factory activity rebounded in China in June. However, a slowdown in South Korea and Japan, with a contraction in Taiwan, is a symptom of material shortage due to supply disruptions and soaring inflation.

China has relaxed its stringent lockdowns and relieved its economy, struggling under draconian start-stop policies. Manufacturers scrambled to meet pent-up demand, which was at its highest in 13 months in June.

However, analysts fear hikes in US interest rates to curb inflation will toss the country into recession and cut down global demand.

Financial markets have suffered because governments are tightening their fiscal policy due to a sharp rise in inflation, suffocating consumers.

The final au Jibun Bank’s Japan Manufacturing PMI (purchasing managers’ index) fell from 53.3 in June to 52.7 within a month, staying above the 50-mark separating expansion and contraction.

S.Korea’s S&P Global PMI fell from 51.8 in May to 51.3 in June, dropping consecutively due to supply constraints and a truckers’ strike.

Taiwan’s S&P global PMI fell below the 50-mark. It officially contracted when it slipped to

49.8 in June. The index stood at 50.0 in May, while Vietnam slumped to 54.0 in June from 54.7 in May.

However, on a positive note, China’s Caixin/ Markit manufacturing PMI jumped from 48.1 in May to 51.7 in June and is officially expanding.

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Sukuk issuance across the globe this year is forecasted to increase by $140 billion to $155 billion, the report said. Sukuk issuance dropped in 2020 to $139.8 billion due to the coronavirus pandemic from $167.3 billion in 2019.

In its report, S&P said, “We expect an increase in the volume of issuances this year as liquidity remains abundant, corporates and sovereigns come back to the market, and new issuances exceed maturing sukuk. In the first quarter of 2021, issuance volumes were up by 1.4 percent in total and 22 percent if Sukuk re-openings (issuances under existing structures) are excluded.”

It further said, “Over the next 12 months, we could see progress on a unified global legal and regulatory framework for Islamic finance … we believe that such a framework could help resolve the lack of standardisation and harmonisation that the Islamic finance industry has faced for decades.”

“Although we expect a modest recovery for most core Islamic finance countries in 2021-2022, we think that the sector will expand against the backdrop of continued standardisation and integration.”

In the last decade, we have witnessed Islamic Finance gaining prominence across markets in Africa, the Middle East and Southeast Asia.

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“The U.K., Switzerland, and Germany aside, European banking systems today typically lack the sizable buffers of subordinated bail-in instruments that could avoid bailing-in senior unsecured instruments if a systemically important bank fails,” said S&P Global Ratings credit analyst Giles Edwards.

Three years since bank resolution regimes were created in most European countries, banks in the region continue their long march from bail-out to bail-in—and many will still be on this road for years to come. After all, making large, complex banks truly resolvable is no mean feat, particularly for those that start with minimal bail-in buffers.

Furthermore, the EU’s resolution authorities have a tougher task than most–whereas the U.S. and Swiss authorities are acting on only the most systemic banks, their EU counterparts must set MREL (minimum requirement for own funds and eligible liabilities, which is the regulatory bail-in buffer) for all banks and lay the complex groundwork to enable a bail-in resolution for even midsize banks.

The crisis management framework for the financial sector has had a positive impact on our ratings on European banks. Under regulatory requirements, European banks that are not global systemically important banks still have plenty of time to build their buffers, though these may start to look less comfortable as we progress through 2019.

Resolvability cannot be achieved overnight, and we do not underestimate the scale and complexity of the task in the European banking union in particular.

“Yet looking back at 2017, we saw more limited progress in some areas than we had expected, notably in the setting of banks’ MREL,” Mr Edwards said.

Bail-in buffers aside, we also note that bank resolution actions could still be undermined if solvent banks cannot access sufficient liquidity in resolution–a topic that has become an imperative to address.

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The positive economic growth that continues in all regions at differing speeds, of course–is tempered by what S&P Global Ratings has identified as Top Global Risks, including heightened geopolitical tensions, the potential for asset-price volatility, Chinese debt overhang, cybersecurity threats, and increased populism and anti-globalization sentiment around the world.

The credit condition expectations by region are as follows:

The US and Canada

Trade tensions resulting from new US tariffs, heightened financial market volatility, and rising interest rates pose the greatest threats to the prolonged period of favorable credit condition in North America, but the prevailing low risk of recession in the region may help extend this benign borrowing environment.

Trade tensions aside, we expect financing conditions to be slightly more restrictive this year amid increasing market volatility and as benchmark borrowing costs rise. Already, the 10-year Treasury yield has responded to investors’ heightened risk-aversion, climbing briefly to 2.96% on Feb. 22, up more than half a percentage point from the beginning of the year. At the same time, S&P Global’s economists now expect the Fed to raise the benchmark federal funds rate four times this year, after last week’s quarter-percentage-point hike to range of 1.50-1.75%-the first under new central bank Chair Jerome Powell.

We forecast US real GDP growth of 2.9% this year, boosted by the recent tax package and increased government spending. Our qualitative assessment of recession risk in the next 12 months remains at 10%-15%.

Europe, Middle East and Africa

Quite suddenly, the stakes have risen as the strong and broad-based eurozone recovery that the European Central Bank (ECB) has been nurturing for almost ten years is threatened by several exogenous risk factors that we have raised to high. A common thread is that these all tie in, to some extent, to the neo-mercantilist policy now being pursued expeditiously by the US administration. The first is the challenge to the global world trade order as the US president uses his executive powers to protect American industry from unfair trade practices. Another is the heightened geopolitical risk arising from the recent appointment of a more hawkish U.S. Secretary of State.

This raises the prospect of the US pulling out of the Iran nuclear accord in May raising tensions in the region as well as among the Western Alliance. With financial markets still very highly valued, it would not take much to trigger a more material correction in financial markets than we have already witnessed in February. We view this risk of greater volatility and a repricing of risk in financial markets as high. Private-sector credit demand for investment and mergers and acquisitions (M&A) has been picking up, as borrowing conditions have remained highly borrower friendly. Pockets of risk are developing. For instance, the economics of collateralised loan obligation (CLO) transactions are encouraging managers to ‘reset’ transactions to facilitate higher leverage.

Asia Pacific

A potential US-China trade dispute could upset otherwise stable credit conditions in the Asia-Pacific. The region’s vulnerability to asset-price volatility and capital outflows remains high, but is unlikely to worsen in the second quarter of 2018. In our view, the top macro-risk is trade-related.

After imposing tariffs on steel and aluminum, the U.S. is reportedly planning to raise barriers specifically against China. President Donald Trump will reportedly slap tariffs of at least $50bn annually on Chinese imports. Any action curtailing China’s major exports to the US, such as machinery and electrical goods or textiles and footwear, could trigger a vigorous response.

For example, China could choose to levy retaliatory tariffs on U.S. agriculture and aerospace exports. A trade war involving the country could affect Asia-Pacific business activity and growth, given regional supply chains and China’s economic size. Consequently, geopolitical fears are high despite slight improvements in the macroeconomic outlook, financing conditions, and rating trends over the past quarter.

Despite marginally tighter credit standards in emerging Asia, financing conditions facing borrowers remain favorable going into second quarter 2018.

Latin America

Credit conditions in Latin America remain favorable, supported by domestic consumption and an advantageous global economy. The growth outlook in developed economies continues to improve, and we expect only gradual monetary tightening during 2018. These conditions have supported continued capital inflows to emerging markets and favorable financing conditions. However, downward risks remain as elections approach in Brazil, Colombia, and Mexico.

The potential election results in these countries is highly uncertain and discomforting for investors, because some campaigns are promoting higher fiscal expenditures and either the reversal of relevant reforms or the absence of important changes. These conditions are delaying investment plans in the region, dampening the tailwinds from favorable global conditions.

Increasing protectionist measures from the U.S. are also a concern for the region. Although Mexico is exempt from US steel and aluminum tariffs, the increased possibility for additional tariffs, trade skirmishes, and potential retaliation from other countries could derail the positive global growth momentum, which could hurt Latin America’s credit conditions.

Potential risks aside, we’re marginally increasing our 2018 GDP forecast for most of the major Latin American economies, solidifying our expectations of stronger growth this year compared to 2017. We now expect the region’s GDP to grow around 2.2%, up from 1.1% in 2017.

Financing conditions across the region remain favorable, and we expect this trend to continue at least during the first half of the year. However, elections may bring some volatility to debt markets and perhaps higher funding costs and thus, liquidity could be lower as elections approach.

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