Negative shock of tariffs, policy uncertainty heightens risk to government finances.

Amid the ongoing U.S. trade war, the outlook for global sovereigns is weakening, says Fitch Ratings — which downgraded the rating outlook for global sovereigns from “neutral” to “deteriorating” as a result.

The rating agency attributed its change in outlook to the economic and financial fallout from higher tariffs and increased policy uncertainty, which also raises the risk of tougher fiscal conditions for governments.

“The escalation in the global trade war, uncertainty over the endpoint for tariffs and their impact on global trade volumes, supply chains, investment and international relations is a significant adverse global economic shock,” Fitch said.

At the same time, the impact of these forces on inflation and economic growth add uncertainty to U.S. monetary policy and increase the risk of financial volatility, it noted.

For major energy exporters, falling global oil prices will also intensify economic and fiscal pressures, it said.

And, the cuts to international aid by the U.S. will add risk to some emerging markets, it noted.

“Public finances will remain under pressure in 2025 from rising defence spending, interest costs, demographic trends, weak growth and social pressures, particularly in developed markets,” Fitch said.

Overall, it forecasts that the median ratio of government debt to GDP will increase this year.

And, it cautioned that geopolitical risks remain high too, “given the wars in Ukraine and the Middle East, U.S.-China strategic rivalry, trade tensions, social discontent and the flux in U.S. foreign policy.”

Amid the deteriorating global outlook, Fitch noted that 10 individual sovereigns currently have “negative” rating outlooks, and 13 are on “positive” outlook.

“Downgrades since 2020 have created headroom in some ratings to withstand a worsening in credit conditions,” it said — adding that, “Policy responses will support ratings in some cases.”