The outlook for the global manufacturing sector has turned negative due to weakening industry indicators and dull earnings growth prospects amid ongoing trade tensions and a widespread economic slowdown, Moody's said in a year-end report.
Global manufacturing activity, as indicated by the Manufacturing Purchasing Managers' Index, was subdued on the year, indicating that "the manufacturing recession has been underway for some time," the rating agency said.
The U.S. flash PMI print stood at 52.5 in December, while the readings for the eurozone and the U.K. came in at 45.9 and 47.4, respectively. A reading below 50.0 indicates contraction.
Trade disputes could further weigh on the manufacturing sector, which is heavily dependent on international trade for input materials and consumer markets, Moody's said.
"With tariffs potentially broadening and little evidence that trade disputes will be fully resolved soon, manufacturers will be pressured by increasing risk related to supply chain disruption and rising material input costs that will not be as readily absorbed by customers," commented David Berge, senior vice president at Moody's.
As the economic expansion rate in Group of 20 economies eases to an estimated 2.6% in 2020 from 3.2% in 2018, profit growth expectations within the industrial segment would come under pressure, with manufacturers logging "modest profit growth or outright declines," Moody's cautioned, projecting the industry's EBITDA growth in a range of zero to 1% for 2020.
The rating agency projects a weak growth trajectory for agricultural, utilities and transportation sectors and moderate expansion for construction, energy and chemical industries. Aerospace defense is the only sector to log strong expected growth in 2020, Moody's said.