Fitch warns possible stagflation poses default risk in many sectors

By Ovunc Kutlu

ANKARA (AA) - Fitch Ratings has warned that a possible stagflation in the US economy poses a risk of default in various sectors.

Fitch said in a statement late Wednesday there could be a default rate of 5%, based on its stress case analysis, if the US economy faces stagflation.

Stagflation is an economic situation in which there is high unemployment and inflation along with a slowdown in economic growth.

Although unemployment is falling in the US, the world's largest economy has not fully recovered from the pandemic, and inflation remains at its highest level in more than 40 years, for which the Federal Reserve has started moving against by raising interest rates.

"Less government stimulus and rapidly rising interest rates could further challenge some issuers, particularly those with unhedged floating-rate, debt-heavy capital structures," said Fitch.

"Default risk could rise for sectors where we believe stagflation would have a medium to medium/high ratings impact, due to elevated raw material costs and demand sensitivity," added the global ratings agency.

Some of those sectors include airlines, automotive, lodging, leisure, and gaming, it said.