Moody's said the 2020 outlook for nonfinancial corporates in Europe, the Middle East and Africa has changed to negative from stable, as persistent lackluster growth among major European economies and weaker demand in key markets put pressure on the performance of companies across the region.
In its annual EMEA corporate outlook report, Moody's pointed out that negative ratings outlooks among companies in the region outnumber positive outlooks by about 3 to 1, suggesting that more negative than positive corporate ratings actions are likely within the next 12 to 18 months.
Moreover, most EMEA-specific sector outlooks are negative in 2019, with the telecoms, auto parts, gaming, retail and steel industries expected to register industrywide slowdowns in revenues.
Companies in the region have access to low interest rates and enjoy generally good liquidity, but Moody's expects corporate defaults to rise amid a generally weak earnings outlook.
Moody's noted that slowing economic activity will affect earnings in key markets, with eurozone GDP growth expected to remain weak at 1.2% in 2020. The automotive and manufacturing sectors would also feel the pinch of a further slowdown in both the U.S. and China.
Trade tensions between the U.S. and China, while negative for the global economy, could divert some trade to EMEA countries. However, companies in the region would be more affected by any escalation in the trade dispute between the EU and the U.S., with tariffs expected on commercial aircraft and consumer goods.
Brexit uncertainty also weighs on investment decisions, but has had limited credit impact so far, Moody's said.
The rating agency noted that EMEA is not a homogeneous area, adding that the region's negative corporate outlook is generally driven by economic and geopolitical risks in the EU, Gulf countries, Turkey and South Africa. Some countries, such as Russia, have stable credit outlooks.