S&P Global Ratings Credit Research & Insights expects the U.S. trailing-12-month speculative-grade corporate default rate to reach 4% by December 2023, from 1.7% in December 2022, according to "Growing Strains Could Push The U.S. Speculative-Grade Corporate Default Rate To 4% By December 2023," published today. This base-case scenario is more than double the current default rate and just shy of the 4.1% long-term average.

Since the last forecast update, U.S. GDP increased more than many expected in the fourth quarter, and both the headline Consumer Price Index and Producer Price Index continued to decline. But aggregate corporate earnings appear to be contracting, based on results so far, and many banks are prepping for a recession.

"Revenue will feel the strain as growth slows, even barring a recession, and an expected rising unemployment rate will negatively affect consumer-reliant sectors, which make up about half of issuers rated in the 'CCC' to 'C' categories," said Nick Kraemer, head of S&P Global Ratings Performance Analytics.

However, if positive trends in economic growth, job creation, wage gains, and falling inflation manage to continue, an optimistic 1.75% default rate could materialize.

If a deeper or longer recession were to occur--and in particular a stubborn, elevated rate of inflation were to take hold--a pessimistic 6% default rate could result.