The Horizon: Tightening Systems
Signals: Week of 5 December 2025 - Private credit stress test, global economy remains fragile, and calls for trade rebalancing
Top Signal: Private Markets Stress Tested by Bank of England
This week, the Bank of England (BoE) announced a new system-wide exploratory scenario (SWES) to stress test private markets, targeting the fast-growing private equity (PE) and private credit (PC) sectors that now manage around US$16 trillion globally.
This exercise aims to map how a severe but plausible global downturn could ripple through non-bank finance, how banks, institutional investors, and alternative asset managers would react, and whether those reactions could amplify stress across the broader financial system and real economy.
This is significant because over the past decade or so, private-market finance has become a core source of corporate funding, underwriting debt, leveraged buyouts, and long-term investment, meaning that any liquidity squeeze could quickly spill into the real economy.
This week’s initiative from the BoE is a part of a broader global regulatory trend signalling an evolving phase of heightened scrutiny, disclosure demands, and potential reforms for the private-equity and credit ecosystem.
Recent research by the Bank for International Settlements (BIS) highlights that the rapid growth of private credit has created structural vulnerabilities, including opacity, concerns about loan valuations and ratings, and growing concentration and interconnections, which could allow stresses in this market to spill over into the broader financial system. Bank of England BIS
Key Signals
Global Economy Remains Fragile Despite Resilience
Earlier this week, the Organisation for Economic Co-operation and Development (OECD) published its latest global economic outlook, which has signaled that while the world economy has shown resilience in 2025, underlying fragilities remain. Growth is forecast to slow from 3.2% in 2025 to 2.9% in 2026, with a modest rebound to 3.1% in 2027.
Growth projections for major economies are weak, with growth dipping in the US from 2.0% in 2025 to 1.7% in 2026 and 1.9% in 2027. Growth is projected to largely stagnate in the euro area, expected to be 1.3% in 2025, 1.2% in 2026, and 1.4% in 2027. Even China, which has long been the engine of global growth, is expected to decelerate from 5.0% in 2025 to 4.4% in 2026 and 4.3% in 2027.
The organisation signaled in its outlook that risks remain, including “the prospect of further trade barriers, a potential sharp repricing of risk in financial markets, potentially amplified by stresses in leveraged non-bank financial institutions and volatile crypto-asset markets”. OECD
Macron Calls For Trade Rebalancing and Global Cooperation During His State Visit to China
French President Macron met Chinese President Xi Jinping in Beijing this week and urged China to help correct “unsustainable” global trade imbalances and to support efforts toward peace in Ukraine. The discussions covered trade, critical minerals, export restrictions, and supply-chain stability. A 12-point cooperation agreement was also signed; however, no major industrial orders (e.g., for Airbus aircraft) have materialised at this stage. This visit underscores the European attempt to recalibrate its economic dependence on China by pushing for fairer trade, strategic diversification, and industrial sovereignty, while, at the same time, navigating geopolitical tensions regarding issues such as Ukraine, US-China competition, and access to critical minerals. Reuters Euronews Al Jazeera
Systems Insight
When taken together, this week’s key signals illustrate a broader systemic tension where the global economic–financial system is entering a phase where multiple weak links could interact and produce non-linear, systemic stress.
Private-market finance has evolved into a powerful but still opaque node of corporate financing. The BoE’s stress test