2025 to Bring Financial Strain, Policy Uncertainty, and Rising Debt : Fitch

COLOMBO (News 1st); Global credit rating agency Fitch Ratings has revised its outlook for sovereign credit conditions in 2025 from “neutral” to “deteriorating,” citing rising trade tariffs, policy uncertainty, and geopolitical tensions as key risks to global economic stability.

According to Fitch, the ongoing global trade war and unclear outcomes regarding tariffs are creating serious disruptions in global trade, investment, and supply chains. These uncertainties are also making it harder to predict interest rate decisions by the U.S. Federal Reserve, increasing the risk of financial market volatility.

Adding to the pressure, Brent crude oil prices are expected to drop to USD 65 per barrel in 2025, down from USD 79.5 in 2024, which could strain the economies of major oil-exporting countries. Meanwhile, cuts to U.S. international aid are likely to impact vulnerable emerging markets.

However, there is a silver lining for some developing countries: the depreciation of the U.S. dollar is expected to ease the burden of dollar-denominated debt and give central banks more room to lower interest rates.

Fitch also warns that public finances will remain under pressure in 2025 from rising defence spending, interest costs, demographic trends, weak growth and social pressures, particularly in developed markets.

Government debt levels are projected to rise slightly, with the median debt-to-GDP ratio increasing to 54.5% by the end of 2025, up from 54.1% in 2024.

Geopolitical risks remain elevated, driven by ongoing conflicts in Ukraine and the Middle East, U.S.-China tensions, and shifting U.S. foreign policy. Despite these challenges, Fitch notes that sovereign credit ratings are relatively balanced mid-year, with 13 countries on a positive outlook and 10 on a negative one.