U.S. nonfinancial corporates are expected to sustain their growth momentum in 2020, although the outlook is more subdued in the coming year amid ongoing trade tensions, political uncertainty around the U.S. presidential election and a potential shift in the credit cycle, S&P Global Ratings said.
"We expect all sectors to see positive revenue growth — albeit very modest for some companies — with profit margins edging higher," Ratings said in its 2020 U.S. corporate credit outlook report. The agency noted that the outlook is based on resilient U.S. GDP growth, which it expects to hit 1.9% next year, and stabilizing economic expansion in Europe, China and other key markets.
The agency expects U.S. corporates to face a more challenging business environment with 2020, as indicated by an increasing negative ratings outlook bias, or the proportion of companies with negative credit outlooks or with ratings on CreditWatch negative. Factors that contribute to this include slowing global economic growth, rising cost pressures, stronger regulation with an emphasis on environmental protection, and uncertainty around trade and supply chains.
Against this backdrop, Ratings expects a differentiation in credit-risk pricing to continue. Strongly rated issuers would continue to benefit from favorable credit conditions, while lower-rated borrowers could face more scrutiny and pricing pressures in accessing capital.