Credit analyst S&P Global expects most countries to sustain economic growth this year due to strong labor markets and consumption despite prospects of still high interest rates.

S&P projects the global economy to settle at 3.2 percent, which it said will likely be driven by emerging economies and China.

Meanwhile, it said the US economy could grow by 2.5 percent as inflation declines.

However, S&P predicts Europe will see a slower growth at 0.7 percent as unemployment rate there flattens.

Recession expectations diminished

“Risks remain elevated, particularly geopolitical and climate risks. But a strong global economy and expected rate cuts in the latter half of the year have diminished expectations of a recession,” S&P said.

According to the U.S. Department of Labor, fewer Americans were unemployed as it recorded a lower jobless rate of 3.8 percent in March from 3.9 percent in February.

Latest data from the European Union, however, showed that the Eurozone area registered 17,000 less workers during the period.

With generally more income-earners, it said firms engaged in media and other entertainment will attract the highest consumption and investments.

“Investment-grade credit is solid. Consumer products companies led among sectors for downgrades, while the media and entertainment sector led for upgrades,” S&P shared.

Emerging markets

For emerging markets, including those in Asia, it said exports will continue to grow with China’s possible stronger recovery and disinflation.

“An expected soft landing in developed economies supports credit conditions based on an anticipated increase in exports and trade,” S&P said.

“Resilient labor markets have helped to power global growth as companies have hoarded employees and service sector demand has remained steady,” it added.

Delayed rate cuts

Optimal growth of businesses could be hampered by later-than-expected interest rate cuts as geopolitical tensions and climate change might disrupt trade and production, leading to higher inflation rates.

“The slow decline of inflation in most developed markets has led to anticipated rate cuts. However, those cuts are now projected to be smaller and slower than borrowers may once have hoped,” S&P said.

Given the projected high interest rates for a longer period, S&P expects loan defaults to peak by the third quarter.

“Demand for corporate debt has remained high among investors, but further downgrades and defaults are possible. S&P Global Ratings anticipates that defaults may increase, particularly among the lowest-rated issuers,” it said.