Slower global economic growth and the lingering effects of higher tariffs are expected to continue weighing on structured finance (SF) asset performance, particularly among asset classes backed by weaker borrowers, according to Fitch Ratings' latest report 'Global Structured Finance Asset Performance and Forecast Monitor: 4Q25.'

"Slower economic growth and effects of higher tariffs continue to pressure global structured finance (SF) asset performance, particularly asset classes backed by weaker borrowers" noted the report.

Despite the mounting pressure, most ratings retain a Stable Outlook, supported by deleveraging and robust structural protections.

"Nevertheless, most ratings have a Stable Rating Outlook, supported by continued deleveraging and robust structural protections" added the report.

Of 89 subsector outlooks for 2025, 38 per cent are deteriorating, primarily in North America, while the remainder remain neutral.

Fitch noted that inflation and weakening labour markets will drag on U.S. and Canadian asset performance, especially subprime loans, while even historically strong prime segments could see mild deterioration. Although rate cuts may provide relief, higher-leveraged and lower-income borrowers continue to face real wage stagnation.

"Low rates and stable unemployment help support asset performance in Europe, although SMEs and non-prime borrowers are most vulnerable to macroeconomic pressures," said the report.

In North America, RMBS delinquencies, both prime and non-prime, are projected to rise, with greater stress among non-prime borrowers.

Commercial mortgage-backed securities (CMBS) performance also remains under pressure amid slower revenue growth and rising expenses.

In Europe, low rates and steady employment underpin overall asset resilience, but SMEs and non-prime borrowers remain vulnerable. Defaults in U.S. and European CLOs are expected to increase, driven by ongoing tariff uncertainties.

"Defaults across U.S. and European CLOs are forecasted to increase in the face of continued tariff uncertainties." the report said.

While RMBS arrears in the eurozone and the UK are likely to stay stable, auto ABS arrears could rise as residual values decline.

Across Australia and New Zealand, falling interest rates and resilient labour markets continue to support neutral performance outlooks.

However, Chinese RMBS and ABS are strained by weaker economic growth and employment concerns. Latin America shows largely neutral asset performance trends, though Fitch expects defaults and arrears in RMBS to rise due to portfolio runoff and adverse selection.

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