July 14, 2025
Peter K Hajjar
Credit Research
Resilience amid risk
Despite persistent macro risks—tariffs, inflation, and geopolitical tensions—financial conditions remain stable. Credit markets show resilience, but high rates and policy uncertainty continue to challenge growth, especially in higher-risk segments.
We had hoped that much of the uncertainty surrounding market conditions and economic forecasts at the end of the Q1 2025—as highlighted in our Q2 2025 Credit Research Outlook— would have eased by the close of Q2. While those hopes were not met, there is still some reassurance in the continued resilience of the economy and credit markets.
This resilience is underpinned by several factors: global household deleveraging following the financial crisis, a balanced dynamic between labor and capital markets, and the ongoing—albeit waning—impacts from post-pandemic fiscal policies. Encouragingly, debt servicing burdens and bank non-performing loans remain historically low in the economies most important to our investment universe.
At the start of Q2, concerns about a potential US and global recession intensified following the Trump Administration’s “Liberation Day” tariff announcements, which threatened to disrupt global trade more severely than many had anticipated. Fortunately, the proposed tariff levels were later scaled back—albeit perhaps only temporarily.
While there remains a risk that US tariffs could rise again for certain countries if trade negotiations stall, there is broad consensus that the period of “peak tariff risk” has passed. Nonetheless, as of this writing, the average US tariff rate is at its highest level in nearly ninety years. If these tariffs persist, they are likely to have lasting effects on both the US and global economies.
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