KUALA LUMPUR (March 12):  While the stage is set for another  global credit downturn, but the next crisis, if any, is unlikely to be as dramatic as in 2008-2009, according to S&P Global Ratings.

In a report titled "Next Debt Crisis: Will Liquidity Hold?"released today, the international ratings agency said while global debt levels are higher than a decade ago, contagion risk is lower.

The report discusses the latest trends in the credit cycle and opines on whether we are heading for another full-blown crisis.

S&P Global Ratings credit analyst Terry Chan said global debt is certainly higher and riskier today than it was a decade ago, with households, corporates, and governments all ramping up indebtedness,"

"Although another credit  downturn may be inevitable, we don't believe it will be as bad as the  2008-2009 global financial crisis.

“That's because the increased debt is largely driven by advanced-economy sovereign borrowing and domestic-funded Chinese companies, thus mitigating contagion risk,” said Chan.

S&P Global Ratings said total global debt has surged by about 50% since the last global financial crisis, led by major-economy governments and Chinese nonfinancial corporates, while global debt-to-GDP ratios have risen to more than 231%, compared with 208% in June 2008.

It said despite higher leverage, the risk of contagion is mitigated by high investor confidence in major Western governments' hard currency debt.

It said the high ratio of domestic funding for Chinese corporate debt also reduces contagion risk, because we believe the Chinese government has the means and the motive to prevent widespread defaults.

“In looking at nearly 12,000 corporates globally, we found the proportion of companies having aggressive or highly leveraged financial risk profiles has risen slightly, to 61%.

“The higher risk is partly driven by Chinese corporates, which now make up about two-fifths of debt we categorize as aggressive and highly leveraged,” it said.

Meanwhile, S&P Global Ratings analyst Alexandra Dimitrijevic said a perfect storm of realized risks across geographies and asset classes could trigger a systemically damaging downturn.

"This downside scenario reflects an increased reliance on global capital flows and functioning secondary market liquidity,"she said.