The share of sovereign issuers downgraded remained steady year–over–year at roughly 14%, while upgrades tumbled to just 2% from nearly 10% a year earlier.

The rating agency also notes that the gap between stable and negative outlooks has already begun to narrow in the first months of 2009.

“Fitch believes diverging sovereign credit trends between advanced and emerging markets will remain a predominant theme in 2010 as public debt/GDP ratios climb steeply toward 100% in the former, even as comparable debt ratios settle at less than half this level in emerging markets,” said Paul Rawkins, director in Fitch's Sovereign Group London.

Emerging markets registered the most negative, as well as positive, movements on the year, recording 11 downgrades, while simultaneously accounting for the two sovereign upgrades in 2009. Developed market sovereigns observed a total of three downgrades with no upgrades on the year.

On a regional basis, similar to 2008 results, emerging Europe accounted for the bulk of rating actions year over year, with a total of seven, including six downgrades and one upgrade. Among those negative actions, the coordinated downgrades of the Baltic States Estonia, Latvia, and Lithuania were a consequence of contracting economic growth and reliance on external funding within each individual state, as well as reflecting their economic interdependence.

“Despite the unprecedented global recession, there were no Fitch-rated sovereign issuer defaults in 2009,” said Charlotte Needham, director in Fitch's Credit Market Research Group.

However, there has already been a sovereign default event with Jamaica’s distressed debt exchange in February.

Given the fragility of the global economic recovery and the potential for renewed bouts of extreme volatility in financial markets, the risk of negative surprises cannot be discounted. Political shocks could also impinge on macro-financial stability as more indebted sovereigns face up to the challenge of fiscal consolidation.

In its March 16 report, Fitch noted that the financial-banking industry had suffered the most downgrades by the rating agency, namely 356, against only 48 upgrades. In the industrial sector, Fitch had lowered ratings in case of 235 companies and raised in 67. The insurance market had seen 74 downgrades and no upgrade by Fitch.