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25 April 2024

Moody's sees severe slump, surge in default rates

By Reuters

Moody's Corp, the parent of credit rating agency Moody's Investors Service, forecast a "severe recession" in 2009, with high-yield corporate default rates climbing to between 10 and 12 per cent.

"The conditions that we experienced in 2008 at a GDP level are going to be increasingly challenging in 2009," Raymond McDaniel, Chairman and Chief Executive of Moody's Corp, said at Citi's Global Entertainment, Media and Telecommunications conference.

"We have in most areas of the world a declining GDP growth with China being the exception, but even the Chinese rate of GDP growth decelerating from what it was in 2008," he added. Moody's estimated the US economy will shrink 1.5 per cent in 2009, while the European Union will 0.6 per cent and Japan's economy will contract 0.5 per cent, pressured by weak consumer activity.

McDaniel said the subprime mortgage-backed securities, asset-backed securities, and collateralised debt obligations markets were gone, while the future of the asset-backed commercial paper market was in doubt. However, some consumer and commercial asset-backed markets could resume their activities, he said, after what called a "very rough cycle".

"I do not expect a significant resumption in securitisation in 2009," McDaniel said.