Mid-Year Corporate Credit Outlook: 2019
Realizing Regional Risk and Uncertainty Around the World
Pockets of risk are emerging in the United States and Canada. It's déjà vu all over again in Europe, the Middle East and Africa. And even as access to financing increases, political uncertainties persist in Argentina, Brazil, Chile and Mexico. Our Mid-Year Corporate Credit Reports are essential for understanding credit changes, developments, and key drivers in important markets.
Published: July 1, 2019
North America Corporate Credit Outlook: Mid-Year 2019
Pockets Of Risk Emerge
While S&P Global Ratings sees increased credit concerns for borrowers in the U.S., we expect ratings to be broadly stable in the near term. Credit risk remains focused on consumer products, retail, pharmaceuticals, and health care services. We expect headwinds for earnings and cash flow, given the continued uncertainty around trade, anticipated slower growth in the U.S., weakening economies abroad, higher labor and input costs, and the dollar’s strength.
Key Takeaways
- – Headwinds hurting growth: Uncertainty lingers as trade-related headwinds persist, giving way to likely slower GDP growth for the rest of the year. Corporate capex spending growth has slumped in response.
- – Defaults to rise modestly: S&P Global expects the speculative grade default rate to increase to 2.7% by March 2020, which would remain below its level from March 2018.
- – Fed about-turn has brought respite to market conditions: Following a turbulent fourth quarter for leverage finance market conditions have improved. This is primarily a response to the Fed’s about turn towards an easing bias, countering deteriorating fundamentals.
European Corporate Credit Outlook: Mid-Year 2019
A Switch in Time?
Global economic growth is stuttering. Our concerns that credit market risk premiums would rise this year in the face of gradual monetary policy tightening and a barrage of political risks — including trade, Brexit and Middle East tensions — have proved unfounded for now, as the balm offered by central banks has once again soothed financial market confidence and underpinned the availability of liquidity.
Key Takeaways
- – Policy switch: Amid growing signs of an economic slowdown, central banks have once again signaled a return to the tried and tested analgesic of monetary stimulus.
- – Corporate credit quality under pressure: Our base case remains that stimulus will avert recession, but systemic fragilities and ebbing corporate credit quality give cause for concern.
- – Top Risks: Global trade, disruptive Brexit, fiscal imbalances in Italy, and weaking European political cohesion are the top European risks. In the Middle East and Africa, the top risks are dependence on external debt, geopolitical risk, and unexpected U.S. Federal Reserve interest rate increases.
Latin America Corporate Credit Outlook: Mid-Year 2019
Improving Access to Financing, but Political Uncertainties Persist
Analyzing each country individually, we provide single-page updates of our key insights that focus on what’s changed in the year to date, what to look out for, and key credit drivers for each of the Latin American countries.
Key Takeaways
- – In Argentina, the oil and gas, and agribusiness sectors are likely to remain relatively strong.
- – Brazil's economy is slowly picking up and export-oriented sectors like iron ore, protein, pulp, sugar, and ethanol continue to enjoy favorable fundamentals.
- – Chile's economic prospects are cooling down. In June, we lowered our GDP growth forecast for 2019 to 2.6% from our previous 3.3% due to the economy's high exposure to China and a more sluggish internal demand.
- – In Mexico, the political environment is still a concern and private investment is unlikely to resume within the next six months.
