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Municipal Credit Outlook 2020

Water & Sewer, power and toll roads should continue to have strong resiliency in 2020. See our detailed breakdown to find out why.

Most municipal borrowers positioned adequately for economic slowdown; climate risks highlighted

Northern Trust's 2019 Capital Market Assumptions projects slowing growth averaging 1.7% annually over the next five years. It calls for continued stuckflation below 2% tied to a peak in globalization and trade as a percentage of GDP. Slowing key indicators including job gains, wage growth, and home values, are reflected in late 2019 revenue collections for many municipal borrowers.

The near-term economic outlook calls for continued steady growth and an overall stable outlook for municipal credit. At the same time, unexpected economic risks can have material impacts on this expectation. Particular sensitivity is around trade uncertainty, recession fears, and stock market weakness.

The vast majority of municipal issuers have utilized the last decade of economic expansion to position for future volatility by growing reserves and deleveraging. This positioning supports improved resiliency indicators. A subset of the market remains more vulnerable today than pre-recession. This group is exceptionally vulnerable to stock market declines, particularly in relation to pension liabilities.