S&P expects European corporate default rate to hit 1.8% by June 2017

By Caroline Salls

Pittsburgh, Aug. 16 – Standard & Poor’s expects the 12-month default rate for speculative-grade European financial and nonfinancial corporate issuers that it rates to rise to 1.8% by the end of June 2017, marginally up from a realized default rate of 1.6% a year earlier, according to a report released Tuesday.

S&P said this forecast remains well below the average 12-month trailing default rate of 3.4% between January 2002 and June 2016.

According to the release, loose monetary policy across Europe, including the European Central Bank’s quantitative easing program, has helped keep down corporate funding costs and default rates.

However, S&P said the prolonged downturn in commodities prices and ongoing bouts of market volatility pose potential threats to continued credit stability.

While most indicators of economic conditions and credit performance remain relatively benign, S&P said some are turning more negative, suggesting that the recent low-default environment may not be sustained much longer.

To achieve the increase to 1.8% by the end of June 2017, S&P said 11 issuers would default over the period in question.

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