Global credit portfolio managers are forecasting rising defaults over the next 12 months due to the new tariffs announced by U.S. President Donald Trump, according to the latest quarterly survey from the International Association of Credit Portfolio Managers.
Globally, 63% of managers see default rates going up over the next 12 months (up from 56% in the fourth-quarter survey), while 35% say they will remain unchanged (up from 30%) and 2% say default rates will go down over the next 12 months (down from 13%). Some totals may not equal 100% due to rounding errors.
The survey results were collected before Trump’s April 2 announcement of new tariffs, but credit managers anticipated them, said Som-lok Leung, executive director of IACPM, in an interview.
“Certainly there was anticipation of them, and I think you’ll find a distribution around the expectations, but directionally, they were what was expected but maybe possibly worse than what was expected,” Leung said. “I think they (the tariffs) are having the predictable effect. Raising tariffs globally and taking a position that looks like the initiation of a trade war is generally not good for the global environment, no surprise there.”
The IACPM Aggregate Credit Default Outlook index, which measures the likelihood managers say default rates will rise over the next 12 months, is -57.8 for the first-quarter survey, a significant drop from -42.8 the prior quarter. Before Trump’s election, the index was -30.4 as of Sept. 30.
A negative number indicates credit conditions are expected to worsen, while positive numbers mean conditions are expected to improve.
By region, sentiment for Asia saw the greatest decline, with its index score falling to -58.6 from -27.6, and North America also saw a very steep decline, with its index score falling to -60 from -30.8 in the previous quarter. Australia had a lesser fall to -43.5 from -31.8.
While Europe has the lowest index score at -64.4 (down from -57.9 the prior quarter), Leung said anecdotally, managers say Europe might provide some unique opportunities.
“Defense spending in Europe is definitely going to be up, and that’s going to be serviced by financing and capital, and then banks will be involved in that. That much is very clear,” Leung said. He also cited the shift to artificial intelligence tools along with energy transition still providing opportunities in that continent.
The survey was conducted among IACPM members, who are credit portfolio managers at more than 150 financial institutions in the U.S., Europe, Asia, Africa and Australia.
