Industry Credit Outlook Midyear 2026
What is the updated Industry Credit Outlook for 2026?
We recently published our Industry Credit Outlook Midyear 2026 updates, comprising 61 reports covering industries across North America, Europe, Asia-Pacific and the GCC, alongside a dedicated Global Digital Infrastructure outlook. Drawing on our analysis of more than 4,700 corporate and infrastructure entities, the reports provide a midyear assessment of ratings trends, key assumptions, credit metrics, and the risks and opportunities shaping industry credit quality.
The updates set out our latest industry credit views in the context of a year that has seen dramatic geopolitical events bringing renewed supply-chain disruption and inflation pressures, adding some uncertainty and fragility back into credit conditions. These event-driven strains come alongside rapidly evolving technological developments which bring significant risks and opportunities and are absorbing considerable amounts of cash flow and funding. Against this fluid backdrop we have seen earnings growth and credit metrics improving, and financing conditions remain comfortable. Our midyear reports draw together our collective assessments of where we are and what will shape the credit landscape in the months ahead.
Industry Cyclicals
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Asia-Pacific Autos
Industry Credit Outlook Update Asia-Pacific: Autos
Navigating falling demand and rising costs
Higher margin pressure than we expect. Our base case assumes only modest margin decline for key rated carmakers in 2026, despite cost inflation. This reflects steady volume, mix optimization, continued cost-cutting, and higher pricing. However, should raw material prices overshoot our expectation or cost-containment efforts falter, carmakers will face more notable margin compression.
Sharper demand contraction. If oil prices stay elevated for a prolonged period, inflation will hurt consumer purchasing power and erode demand.
Trade policy uncertainty. The U.S.-Mexico-Canada Agreement is under review. Visibility on a full-term extension is low. A higher requirement on U.S. components will raise manufacturing costs for Asian carmakers’ operations in North America, further squeezing margins.
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Asia Pacific Capital Goods
Industry Credit Outlook Update Asia-Pacific: Capital Goods
Solid backlogs and financial buffers cushion downside risks
Geopolitical escalation and energy supply disruption. A deeper or more prolonged conflict could drive not only higher energy and logistics costs, but also tighten availability of fuel, power, and energy-related inputs, disrupting procurement, production, and delivery.
Trade and policy uncertainty. Renewed U.S. policy uncertainty including tariffs could further squeeze margins and delay investment decisions of customers and slow order momentum.
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Asia Pacific Chemicals
Industry Credit Outlook Update Asia-Pacific: Chemicals
A prolonged Middle East conflict heightens downside risks
A weaker ability to pass through costs. Demand weakness, a softer economic outlook, and competition from low-cost gas-based producers in the U.S. and coal-based producers in China could limit the ability of Asia’s oil-based commodity chemical companies to pass through sharply higher input costs.
Worsening utilization rates. Supply disruptions could sharply lower capacity utilization, adding to cost pressures for Asia's chemical companies, in a prolonged war scenario.
Intense competition. Sharply higher feedstock costs, lasting supply disruptions, and competition from China's latest cost-efficient integrated facilities may test the viability of aged, smaller and less integrated facilities in China and other Asian countries.
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Europe Aerospace and Defense
Industry Credit Outlook Update Europe: Aerospace and Defense
Backlogs surge, production rises, supply chains creak
Reignition of the Middle East war. At the height of the war in March, many hub airports in the region were temporarily shut, Gulf carrier widebody traffic declined to about 20% of capacity, and the cost of jet fuel more than doubled. A return to open war for a prolonged period could impair consumer confidence, flying hours, energy costs, and--indirectly-- supply chains.
Unpredictable U.S. foreign policy and rapidly evolving defense priorities. Changes in strategic priorities and defense technologies could increase spending for certain defense categories, such as air defense systems and drones. Conversely, spending on other segments, such as crewed aircraft, could decrease. Overall, we expect most rated defense issuers in EMEA will benefit from the change in spending priorities
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Europe Autos
Industry Credit Outlook Update Europe: Autos
Europe is a sweet spot for light vehicle sales, but for how long?
Sales momentum in Europe. Revamped inflation linked to the Middle East war is an additional headwind for margins in 2026. The more relevant risk is on demand as the ability of many OEMs to retain ratings depends on the recovery of a positive trajectory in credit metrics in 2027--prolonged challenging market conditions jeopardize this.
Industrial Accelerator Act. It is uncertain to what extent the plan will incentivize a boost in auto production in Europe and establish local content rules to support localized supply chains. A vote is expected between autumn and the end of 2026.
China's sluggish market fuels export-driven competition. The competition across AsiaPacific and other markets is intensifying pricing pressure and eroding market shares. In the EU30 market, premium brands are currently more resilient than volume brands (Source: ACEA, May 2026). However, the increasing appeal of Chinese vehicles for fleet managers could gradually weaken this advantage.
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Europe Capital Goods
Industry Credit Outlook Update Europe: Capital Goods
Technology and electricity investments support growth
Solid cash conversion among investment grade companies supports rating headroom. Median free operating cash flow to debt remains solid at about 29%, which allows companies financial flexibility to invest in acquisitions or distribute funds to shareholders.
Continued merger and acquisition (M&A) spending as issuers expand geographically and strengthen product portfolios. However, we think investment-grade issuers are committed to their financial policy and are carefully matching free operating cash and asset disposals with spending on M&A or shareholder returns.
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Europe Chemicals
Industry Credit Outlook Update Europe: Chemicals
Temporary tailwinds amid persistent challenges
The ratings outlook on 34% of speculative-grade chemicals companies is negative. By contrast, only 10% of ratings on investment-grade companies carry a negative outlook. Geopolitical tensions continue to weigh on the ratings on highly leveraged companies, but temporarily higher margins could ease the burden on commodity chemicals.
Market conditions for fertilizers are mainly supportive. Tight nutrient supply, firm potash and nitrogen pricing, and resilient agricultural demand support profitability, though higher energy freight and affordability pressures may impair the outlook.
The EU has increased anti-dumping duties on some chemicals. The effectiveness of these measures, which aim to shield domestic manufacturers from low-cost imports, remains limited. However, they demonstrate that EU policymakers have come to recognize the strategic role of European petrochemical production.
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GCC Chemicals
Industry Credit Outlook Update GCC: Chemicals
Geographic diversification will determine credit resilience
Effectiveness of alternative export routes being tested. Second quarter results should provide early evidence of how effective the alternate routes for chemical products were (in the United Arab Emirates [UAE] and Saudi Arabia) despite logistical constraints. At this stage, solid chemical products appear easier to reroute or store compared with liquids, which require specific storage requirements and transportation methods.
Delays in growth projects likely. We expect elevated capital expenditure over the next 12- 24 months as most of our rated issuers in the region had growth projects (including QAFCO-7 in Qatar). Uncertain physical asset risk could potentially cause delays in earlystage growth projects. We do not anticipate important and strategic projects to be canceled, nor do we expect a meaningful change in the overall strategic direction
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North America Aerospace and Defense
Industry Credit Outlook Update North America: Aerospace and Defense
Strong commercial and defense demand benefits companies
New model approvals for Boeing. Boeing is poised to receive long-awaited Federal Aviation Administration certification for two 737 MAX model variations this year, including the extended-range MAX-7 and expanded-capacity MAX-10, and expects to begin deliveries of its 777X wide-body plane next year. Ongoing delays could slow its recovery and lower growth for suppliers.
Supply chain ramping to meet demand. Aerospace component makers are increasing production for commercial and defense customers. Higher utilization and pricing power should enable margin gains but increase capital needs to support capacity expansion.
Defense budget negotiations. The White House’s 2027 budget proposal includes nearly $1.5 trillion for defense (about 5% of U.S. GDP), a 44% year-over-year increase. The size of an enacted budget is uncertain, especially considering the timing of midterm elections. Changes in strategic priorities and shifts in technology may impact funding allocation.
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North America Autos
Industry Credit Outlook Update North America: Autos
Higher costs, muted sales will soften earnings
Automakers' ability and willingness to pass through price increases without sacrificing volume. Critical to this will be production discipline as current inventory remains below pre-pandemic averages (49 days for June versus a 65-day, 10-year average). We assume limited ability to fully pass on costs to consumers amid competitive pricing environments.
The Middle East war presents challenges, including softer demand, supply chain disruptions, and rising costs related to DRAM, shipping/logistics, and aluminum. The UAE and Bahrain alone account for 20%-25% of U.S. unwrought aluminum imports.
Consumer affordability and credit dynamics. High vehicle prices (up 40% since 2019) and general inflation will likely keep delinquencies and charge-offs above pre-pandemic levels, particularly among subprime borrowers. Average monthly payments have risen to roughly $750, which, in addition to higher cost of insurance and maintenance/repair, could limit growth in vehicle demand for 2027.
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North America Capital Goods
Industry Credit Outlook Update North America: Capital Goods
Broad demand strength supports credit quality
Capex decisions look firm. Global technology and utility investments could rise 45% and 19%, respectively, in 2026. Even if that growth flattens, it provides a baseload of spending while other sectors normalize their capex growth around nominal GDP growth.
Supply chain disruptions and higher costs test pricing power again. Supply chain delays were easing until recently, which likely extends the run of elevated input costs and price increases. Even if hostilities in the Middle East ended quickly, we expect uneven recovery over several quarters with a few years of repair for some raw materials producers.
Strategic investments overwhelm rate pressures. Persistently elevated interest rates would typically chill investment decisions, but the capex cycle has run fairly strong since 2021. Strategic priorities like technology, infrastructure, and critical materials underpin a long cycle of large government and corporate spending.
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North America Chemicals
Industry Credit Outlook Update North America: Chemicals
A break in the clouds
The duration of the supply chain disruptions. Financial performance improvements at many U.S. producers will be greater the longer the global supply disruptions continue, creating shortages and price rises.
Economic downturn. The war may disrupt global supply chains and trade and energy markets for a prolonged period, raising the odds of a recession. The resulting weakness in financial performance for U.S. chemicals producers could more than offset the temporary upfront gains from the war.
Re-emergence of a supply overhang. The timing and extent of the bounce-back in global chemical capacity--following temporary shutdowns during the war--will shape U.S. chemical earnings beyond this year. We assume China will continue to build capacity and pressure global margins for chemicals next year.
Consumer Cyclicals
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Asia-Pacific Consumer Products and Retail
Industry Credit Outlook Update Asia-Pacific: Consumer Products and Retail
In search of light
Consumer sentiment turns materially negative. The Middle East conflict elevates inflation and supply-chain risk, especially as these factors forces manufacturers to balance stable production, cost savings, and brand equity.
In China, manufacturer margins could worsen materially from the third quarter as benefits from previously locked in costs diminish. Overly aggressive discounting by retailers could hurt corporate profitability for longer.
In Japan, consumers are becoming more selective, splurging on items they value while looking for lower-priced essentials. Manufacturers are desperate to cut costs while procurement for some materials such as packaging could be at risk.
In Australia, consumer sentiment is worsening from renewed cost-of-living pressures and rising interest rates. Absorbing supplier price increase requests and reliance on promotions may erode corporate profitability.
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Asia-Pacific Gaming
Industry Credit Outlook Update Asia-Pacific: Gaming
Moderate demand amid macro challenges
Softer demand. If high oil prices persist, travel demand may soften as consumers cut discretionary leisure spending. Gaming demand from the more price-sensitive base mass players would be more affected than premium mass or VIP.
Higher capital expenditure. Projects underway in Japan, United Arab Emirates (UAE), and New York will likely propel capital spending of operators such as MGM, Wynn, and Genting Bhd in 2026. For Wynn, if regional conflicts continue, it could delay projects or raise doubt on long-term operational safety in its UAE property.
Regulatory uncertainty. Evolving regulations on stricter governance of online gambling operators in the Philippines could alter player behavior or increase customer acquisition costs, potentially hindering revenue growth and profitability
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Asia-Pacific Media and Entertainment
Industry Credit Outlook Update Asia-Pacific: Media and Entertainment
AI spending and consumer headwinds are key risks
Rising fuel prices weigh on consumer and ad spending. Most Asian countries are net importers of fuel. Higher fuel prices erode purchasing power and could depress domestic demand. Lower consumer spending will directly affect e-commerce revenues, and indirectly lower advertiser spending. Higher fuel costs could also increase e-commerce delivery fees, further dampening online consumption trends.
Risk of AI investments burning through cash. Internet companies in Asia are substantially increasing investments in AI, which is reducing free cash flow and, in certain instances, eroding net cash positions. A failure to generate satisfactory returns on these investments could diminish their cash reserves.
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Europe Consumer Products
Industry Credit Outlook Update Europe: Consumer Products
Limited pricing power amid geopolitical and inflation pressures
Headroom for cost passthrough is low, amid softer demand. Companies are extremely cautious on pricing actions, because stretched consumers are likely to rebuff significant increases. Companies operating in very competitive segments or with lower brand equity will be forced to absorb some of the additional costs and will see margin compression.
Private label products will continue to make inroads. However, market share losses to private labels and challenger brands should moderate, given that cost pressures are industrywide and brands are investing in innovation, price, and promotions to preserve their market share.
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Europe Hotels Gaming and Leisure
Industry Credit Outlook Update Europe: Hotels, Gaming and Leisure
External headwinds pose risk to margin preservation strategies
Shift to margin protection. The strategic focus has pivoted from volume growth to margin protection as labor, energy, and food and beverage costs increase. Economy and midscale operators might lack pricing power to pass these costs onto price-sensitive consumers, accelerating margin compression.
Focus on strategic execution to preserve margins. Gaming operators are optimizing their cost structure through disciplined marketing spend. Marketing investments in the FIFA World Cup will prove operators' ability to achieve long-term revenue without compromising short-term profitability.
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Europe Media and Entertainment
Industry Credit Outlook Update Europe: Media and Entertainment
Steady beat amid the heat
AI is moving into action. Generative and agentic AI drives operational efficiencies, reduces content production and editing costs, automates workflows, improves advertising management and data-driven analytics, and provides new revenue streams. Data and analytics providers, programmatic ad exchanges, music companies, and film and TV studios should broadly benefit from AI adoption. Ad agencies and online content publishers face a risk of revenue displacement from changing algorithms, content consumption patterns, and intensifying competition and could struggle to adapt.
Classified business model is resilient, but performance varies by verticals and local markets. Classified platforms offer value to consumers and benefit from direct traffic, first party data, and access to inventory. Large language models, chatbots, and AI agents cannot easily replicate this, but classifieds could face interface disintermediation and pressure on pricing and margins. Certain verticals such as jobs and real estate are exposed to macroeconomic risks, especially if negative trends intensify.
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Europe Retail and Restaurants
Industry Credit Outlook Update Europe: Retail and Restaurants
Navigating headwinds of higher inflation and weaker growth
Low margins leave limited headroom to absorb higher costs. European retailers' median EBITDA margins are already weaker than those in North America and Asia-Pacific, reflecting lower economies of scale and more-intense competition from regional retailers.
AI and technological acceleration could improve supply chains and digital commerce. Retailers that can invest or form partnerships to improve their logistics and customer experience will gain market share.
Ability to invest in growth capital expenditure varies widely. Retailers and restaurants we rate with weak or vulnerable business risk profiles and highly leveraged capital structures constitute about 15% of our rated portfolio in Europe. These generate only modest or no free cash flow, significantly curtailing their ability to invest in operations, stores, and omnichannel capabilities.
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North America Consumer Products
Industry Credit Outlook Update North America: Consumer Products
Persistent inflation weighs on volume recovery and margins
Revenue growth remains tepid. If price and brand investments do not spur demand, this suggests a deteriorating consumer environment, weaker competitive position, or secular declines in certain subsectors, such as packaged food and alcoholic beverages.
Margin contraction. Higher transportation and input costs, along with price and brand investments, could result in another year of margin contraction.
More aggressive portfolio reshaping. Stagnant growth could lead to more acquisitions of higher-growth assets or divestitures of non-strategic brands.
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North America Hotels, Gaming and Leisure
Industry Credit Outlook Update North America: Hotels, Gaming and Leisure
Leisure spending is resilient despite headwinds
Possible tailwind from tax refunds. Refunds to low-end consumers may provide an offset to already high prices and increasing inflation, especially traffic and spending at casinos and online gaming sites, but are likely a temporary driver this year.
Peak tariff risk may be behind us. The full effect on core goods inflation continues to climb and will directly affect leisure goods manufacturers’ profitability, with an indirect impact on overall discretionary leisure spending, possibly hitting high-income consumers eventually.
Acquisitions in gaming heat up. Fertitta’s agreement to purchase Caesars and People Inc.’s nonbinding proposal to acquire MGM Resorts may reflect an increasing appetite for higher leverage in the gaming sector.
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North America Media and Entertainment
Industry Credit Outlook Update North America: Media and Entertainment
Pursuing scale amid regulatory hurdles and macro uncertainty
Strong digital ad growth is offsetting a decline in spending on legacy media. Midterm elections will boost growth in the latter half of 2026. Broad economic weakening could challenge strong industrywide growth.
Streaming profitability is expanding. Price increases, growing content libraries, streaming bundles, and ad-supported offerings should sustain streaming revenue growth and expand profitability. For legacy media companies, this will help offset continued linear TV declines.
Cutting down on cord-cutting. Charter Communications alleviated much of its video churn by bundling streaming and linear offerings. However, we are uncertain if this improvement will last and if other video distributors will follow suit.
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North America Retail and Restaurants
Industry Credit Outlook Update North America: Retail and Restaurants
Consumer spending bifurcation continues
Slowing foot traffic and weaker comparable store sales. Sustained high gas prices and inflation could lower demand, especially during the key back-to-school and holiday selling seasons.
Margin contraction and weakened cash flow. High transportation and cost of goods, along with price investments could weaken margins. Higher-cost inventory or poor inventory management could also strain cash flow. IEEPA tariff refunds could provide one-time relief to some issuers.
Capital spending and store growth/closures. Companies will continue to invest in maintenance capital expenditures and technology. The pace of openings could slow while closures accelerate in slower-growth environment
Energy
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Asia-Pacific Metals and Mining
Industry Credit Outlook Update Asia-Pacific: Metals and Mining
Pressure still on the downstream
Demand may sharply contract. Prolonged instability in the Middle East could disrupt trade, increase energy prices, and hinder global economic growth. Further decline in China's metals consumption or a marked deceleration in the AI-related investment boom, may hit demand for certain metals (e.g., copper, aluminum, and steel). Additionally, uncertainties surrounding tariffs and policies pose further risks to demand.
Geopolitical risks escalate. The immediate impact of the Middle East conflict is an increase in fuel and transportation costs. Most Asian miners’ operations are not directly exposed to the conflicts. Prolonged conflict could lead to fuel shortages, potentially disrupting mining operations. Tariffs, new trade agreements, and policy measures designed to secure supply are determining the allocation of capital and the locations of investment.
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Asia-Pacific Oil and Gas
Industry Credit Outlook Update Asia-Pacific: Oil and Gas
Higher-for-longer prices and rising supply uncertainty
Demand destruction driven by sustained high prices. Given the conflict’s uncertainty, limited alternative logistics routes and material damages to key energy infrastructure, energy prices could remain elevated for much longer. Higher prices could erode demand, offsetting immediate short-term gains for some players. Prolonged disruption will likely cause a sharper economic slowdown.
Reduced accessibility could also lead to lower production. Aside from price, accessibility to feedstock is increasingly a critical issue for Asia-Pacific. So far, producers can source from alternative suppliers in North America and West Africa, but supply will remain tight especially if these regions are slow to ramp up production. Export bans, threat of demand destruction, and tighter and more expensive supply are likely to lower production. We understand most rated integrated producers have lowered their refining utilization rate by 10-20 percentage points since the conflict started.
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Europe Metals and Mining
Industry Credit Outlook Update Europe: Metals and Mining
Prices remain supportive for now
Local spheres. Because of increasing regulations, tariffs, and scarce resources, we think that local production will progressively be consumed locally, reinforcing regionalized supply chains over globalized trade flows.
Inflation. As commodity prices climb, producers pass rising costs onto end-product prices, squeezing affordability. This could temper consumer demand, testing demand elasticity, and creating a natural ceiling as to how far the cycle can run before consumption pulls back.
Margin compression. Higher U.S. dollar-denominated energy costs in the second quarter of 2026 will likely result in weaker margins for producers not benefiting from stronger commodity prices.
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Europe Oil and Gas
Industry Credit Outlook Update North America: Metals and Mining
Conflict intensifies the race for critical materials
Supply shocks hit output and spike prices. Several metals have been sensitive to a range of disruptions, such as weather and transport for bulk commodities, geological disturbances for base and precious metals, or trade restrictions for critical materials.
Tariffs keep steel prices high in the U.S. Stronger earnings support credit quality for steel and aluminum producers in the U.S., and processors are passing along higher costs to boost their cash flows.
The race for critical materials could spark more spending. Governments around the world, including the U.S., are financing projects to secure critical materials. Primary aluminum, copper, lithium, nickel, and rare earth metals are priorities for mining and processing investment.
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North America Metals and Mining
Industry Credit Outlook Update North America: Metals and Mining
Conflict intensifies the race for critical materials
Supply shocks hit output and spike prices. Several metals have been sensitive to a range of disruptions, such as weather and transport for bulk commodities, geological disturbances for base and precious metals, or trade restrictions for critical materials.
Tariffs keep steel prices high in the U.S. Stronger earnings support credit quality for steel and aluminum producers in the U.S., and processors are passing along higher costs to boost their cash flows.
The race for critical materials could spark more spending. Governments around the world, including the U.S., are financing projects to secure critical materials. Primary aluminum, copper, lithium, nickel, and rare earth metals are priorities for mining and processing investment.
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North America Midstream Energy
Industry Credit Outlook Update North America: Midstream Energy
Stability amid uncertainty
An industry pivot to behind-the-meter builds. The industry is shifting to building energy projects at customers' locations. We don’t expect many companies to start dealing directly with data centers, but if they do, it could increase risks related to counterparties, stranded assets, and changes in business mix.
A greater use of structured capital. Structured funding may protect balance sheets and creditworthiness. However, the instruments may include language on governance, cash payments, and business considerations that could offset the intended financing benefits.
An eye on Canadian infrastructure development. Additional crude oil egress to Gulf Coast refiners and the viability of a west coast pipeline to supply Asian markets still has hurdles to overcome. These include carbon pricing, producer commitments, and publicprivate cost considerations.
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North America Oil and Gas
Industry Credit Outlook Update North America: Oil and Gas
Didn’t see this coming: Geopolitical events take center stage
Sustained actual cargoes shipments through the Strait of Hormuz. The rate of return and resilience of Persian Gulf volumes will be key for oil market balances and prices in the second half of 2026. We believe a full reopening of the strait, assuming no further conflicts, could take up to six months.
Natural gas pricing amid capacity expansion. Extensive liquefied natural gas (LNG) buildout in the Gulf of Mexico has not yet driven natural gas prices as high as we had estimated, but we still believe the surge of capacity will ultimately increase prices.
Merger and acquisition (M&A) appetite. The upstream sector maintains a high level of activity as companies focus on diversifying and acquiring hydrocarbon assets. For the most part, deals have been financed in a balanced manner.
Real Estate & Construction
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Asia Pacific Building Materials
Industry Credit Outlook Update Asia-Pacific: Building Materials
Asia-Pacific producers continue to face demand strains
Prolonged Middle East conflict to keep energy prices high. Higher transportation costs, with diesel as fuel for trucks and vessels. Indirectly, coal prices (key energy input) may increase as a substitute for oil and gas.
China: A further deterioration in the property sector and moderating growth in infrastructure investment. Without major nationwide policies to address excess inventory, primary home sales could decline beyond our base case of 10%-14% in 2026. China’s tighter oversight around project viability and debt accumulation couldcause further slowdown in development of new transportation infrastructure.
Korea: Slower recovery of the private sector. The private sector-driven recovery could take longer, due to high construction costs and uneven demand across regions. Project financing loans and the weaker credit quality of SME construction companies may add to downside risk.
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Asia Pacific Real Estate Development
Industry Credit Outlook Update Asia-Pacific: Real Estate Development
China’s market may need continued policy support
Lack of continued policy support to China’s property market. Transaction volume has picked up in selected higher-tier cities amid a slew of supportive government policies. If these are discontinued, China’s homebuying demand could weaken.
Land auctions could test Hong Kong developers’ discipline. Hong Kong’s boom-bust real estate cycles show there is potential for heated land bidding. If rated developers become too aggressive in upcoming land auctions, their rating buffers could be undermined.
Mortgage access and rates could affect demand in Indonesia. The majority of Indonesian homebuyers rely on mortgage loans to purchase residential units. If interest rates rise amid higher-than-expected inflation, home demand could dampen. A protracted increase in mortgage NPLs may lead to more cautious mortgage lending
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Asia-Pacific Real Estate Investment Trusts
Industry Credit Outlook Update Asia-Pacific: Real Estate Investment Trusts
Survival of the fittest in divergent markets
Global tensions may stoke economic and inflationary pressures. Office, retail and industrial rents, occupancy and demand may weaken from a slowdown in consumer spending and corporate activity. Intended capital flows back into recovering regions and sectors may be hampered by uncertainties and associated volatility.
Change in portfolio earnings mix may increase volatility. Japanese and Australian landlords may see higher earnings volatility if developments and funds management contribute more to their profits.
Increasing funding costs constraining credit metric headroom. Faster-than-expected interest rate hikes in Japan and sluggish revenue increases could dent Japanese landlords' credit metrics. Interest coverage remains sound but is declining. Multiple interest-rate rises in Australia may crimp A-REITs’ interest coverage headroom as financing costs outpace rental earnings growth.
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Europe Building Materials
Industry Credit Outlook Update Europe: Building Materials
Growing credit quality divide as recovery delayed again
Elevated pressure in the 'B' category. This is especially true for building materials distributors, which have been hit by soft residential demand, pricing pressures, and intense competition. More broadly, credit quality is at risk for issuers whose free cash flow turned negative due to lower volumes and margins, and elevated interest costs.
Ratings on investment-grade issuers are holding steady. Resilience stems from typically deeper diversity by end market and geography, value added product solutions, and the ability to adjust to changing market conditions. As of June 30, 2026, investment-grade stable outlooks remained unchanged at 94% (2025: 94%), whereas speculative-grade negative outlooks rose to 33% (2025: 24%).
Civil engineering and datacenter tailwinds are the main growth engines. Issuers with exposure to public infrastructure investments related to mobility, energy transition, defense, climate adaptation, or to the booming demand for datacenters, will benefit.
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Europe Homebuilders and Developers
Industry Credit Outlook Update Europe: Homebuilders and Developers
High building costs and interest rates will weigh on profitability
Higher rates should weigh on demand. We now expect long- and short-term rates to be higher in 2026 compared with 2025, which should affect developers' sales. This is particularly the case for countries where buyers heavily rely on mortgage loans, such as the U.K., France, and Germany.
Construction costs should remain elevated and dent margins. Higher prices for raw materials due to the elevated oil price, and the continued labor shortage, should prevent developers from restoring their historical margins in the short term.
Spain should continue to outperform. Thanks to being less exposed to mortgage loans, strong demographic growth, and stronger economic indicators--notably GDP growth and job creations--we expect developers in Spain to perform better than peers in other European countries.
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Europe Real Estate
Industry Credit Outlook Update Europe: Real Estate (REITs)
Higher rates will delay, but not derail, market recovery
We project valuations will be neutral to slightly negative in 2026. After increasing on average by 3.2% in 2025, valuation growth this year will likely be constrained by higher risk-free rates and lower rental growth compared to last year. To date, valuations are 5.9% below their midyear 2022 peak.
We expect rental growth to start to pick up in late 2026. Rent indexation next year will be boosted by rising inflation, though time lags will vary by market. We think office occupancy will benefit from lower supply. AI-related companies will likely favor prime offices versus nonprime in the short term, though the long-term impact of AI is uncertain.
We forecast stable EBITDA-to-interest and debt-to-debt-plus-equity ratios. We think rate increases will affect REIT refinancing costs and valuations, but unlike over 2022- 2023, the impact will be more muted since their properties and a significant portion of their debt have been repriced since 2022. For companies with still very low cost of debt, the impact will be more material as hedging effects fade.
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GCC Homebuilders and Developers
Industry Credit Outlook Update GCC: Homebuilders and Developers
Navigating war-related risks in GCC's uncertain markets
Increase in supply in 2027-2028. Assuming no delays in construction, Dubai will add about 20% more units until 2028 and Abu Dhabi about 13% as per JLL reports. This future supply will constrain price and rental recovery in the coming years.
Recovery prospects for companies with negative outlooks. PNC Investments LLC (Sobha) and Omniyat Holding ltd. have negative outlooks because of their geographic focus on Dubai and the uncertainty in residential real estate sector. We expect the deleveraging and recovery path to be more challenging because of the Middle East war.
Project cancellations and delinquencies could increase. We expect developers to only be slightly affected by this, given the strong regulations. During previous downturns, such as the 2015 property price decline or the COVID-19 pandemic, delinquencies hit 3%-10% for top-tier developers. For the wider market, however, this number could be much higher for new and inexperienced developers.
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GCC Real Estate
Industry Credit Outlook Update GCC: Real Estate
Uneven risks from war across the region's segments
Abu Dhabi and Saudi Arabia's markets remain supported. These markets benefit from strong structural demand from the local population and significant government-backed investment programs. Abu Dhabi and Riyadh's governments, however, have a rental freeze in place on residential, commercial, and retail leasing, given the rental escalations were leading to high inflation.
Adjustments to capital expenditure (capex). Companies we rate have planned expansion and new malls for the next two to three years. Operating performance is stable and funding is largely available for these companies, however, we expect capex recalibration over the coming quarters--exacerbated by construction material supply chain issues.
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North America Building Materials
Industry Credit Outlook Update North America: Building Materials
Demand division pressures fundamentals
Housing affordability. Even as we assume the Fed’s interest rate policy will remain at a range of 3.5%-3.75% for the rest of 2026, the balance of risks has tilted toward higher rates. Inflation is running well above the Fed’s target of 2%, and we think strength in the labor market will encourage policy makers to remove some of the cuts provided in 2025. As such, affordability challenges and cautious consumer spending will continue to weigh on construction and demand in the second half of 2026 and into 2027.
Infrastructure spending could provide some support. In particular, demand for aggregates remains strong. Also, the growth of AI has benefited general construction, cooling, and building products for data centers. However, margins may remain pressured across the sector amid continued softness in residential construction and discretionary spending. Nonetheless, aging housing stock, federal investments in infrastructure, and select nonresidential projects are still providing some demand stability.
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North America Engineering and Construction
Industry Credit Outlook Update North America: Engineering and Construction
Digital infrastructure powers sector’s profitable growth
Executing unprecedented project volume within compressed timelines is critical. As project scope, value, and complexity increase, the ability to maintain quality, secure labor, and adhere to schedules are key differentiators. Issuers with robust self-perform capabilities appear to hold a competitive advantage, whereas heavy reliance on subcontracting may heighten project closeout risks.
Reshoring trends are poised to boost investment in the U.S., particularly within the manufacturing and technology sectors. Trade uncertainty stemming from the U.S. decision to decline a long-term renewal of the United States-Mexico-Canada Agreement (USMCA) could bolster growth.
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North America Homebuilders and Developers
Industry Credit Outlook Update North America: Homebuilders and Developers
Navigating affordability, volatility, and market shifts
The entry-level segment remains under intense pressure due to a significant supply/demand mismatch and affordability challenges. Homebuilders that focus primarily on affordable starter homes are experiencing greater margin volatility and steeper rates of EBITDA declines. In contrast, builders that diversify their offerings--catering to less economically sensitive build-to-order customers--are seeing more stable margins and less-drastic volatility.
Gross margins continue to trend lower, with some builders' margins falling below pandemic-era levels as they prioritize sales pace over profitability. While margin stabilization could signal that demand and pricing have reached the cycle's bottom, the duration of this trend remains uncertain.
Volatile input costs and evolving supply chains test operational efficiency. Cycle times are at sector lows, while larger, well-capitalized firms leverage their scale to implement predictable supply chains and negotiate more effectively with material suppliers
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North America Real Estate
Industry Credit Outlook Update North America: Real Estate
Operating stability across most property types
Pace of rate cuts. Higher-than-expected inflation could delay rate cuts or potentially lead to rate hikes. This could hamper access to capital for both debt and equity issuances.
Steady rental rate growth across most property types. Supply pressures have eased in 2026 for multifamily and industrial properties, and new supply is lacking in retail, office, and healthcare. Given the resilient demand, this should lead to steady rental rate growth and overall solid operating performance across most property types.
Stable credit ratios. We expect solid operating performance, combined with most REITs’ keen focus on their balance sheets, will result in stable key credit ratios.
Other Corporates
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Asia Pacific Technology
Industry Credit Outlook Update Asia-Pacific: Technology
AI hardware boom counters global tensions, cost inflation
AI-driven hardware demand could fall short. Low AI monetization visibility, elevated energy cost, and geopolitical conflicts may slow data center build-outs, weakening demand for advanced chips and servers. This could result in overcapacity and inventory issues for some firms.
Geopolitical risks and trade tensions remain key. Extended Middle East war could disrupt materials supply, energy and logistics. Large firms have better operational flexibility and can absorb costs, but cost inflation could hurt margins for smaller firms or consumer electronics players. Additional tariffs or trade restrictions could disrupt supply chain and lower demand.
Memory price spikes could hurt price-sensitive products. Memory shortages and price spikes could be more severe than expected. Rising memory prices would weigh on the margins of various players, such as consumer electronics and office equipment.
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Asia Pacific Telecommunications
Industry Credit Outlook Update Asia-Pacific: Telecommunications
Local competitive dynamics drive earnings trajectory
Macro uncertainties, supply-chain disruptions. Higher inflation and weaker sentiment could slow enterprise customer demand; spending by retail customers should stay. Capex may face some delays and come at a higher cost as network equipment shipment could face diversion with disruptions from the Middle East conflict.
Regulations can lower entry barriers, spark price competition. Network infrastructuresharing rules can boost new entrants’ viability and create positive cost-economics for all telcos. But they could also result in more focus on price competition with less network quality differentiation.
Spectrum purchases and network breaches pose risks. Sporadic spectrum buys could raise leverage, especially where licenses are expensive. Telcos cannot always control network breaches—both outages and cyberattacks. But the fallout in terms of churn, remediation, and reputation would be theirs to bear.
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Asia Pacific Transportation
Industry Credit Outlook Update Asia-Pacific: Transportation
Turbulence amid geopolitical conflicts
Fuel prices remain higher for longer. High fuel prices could make it hard for airlines to pass on additional costs, given already elevated airfares. Airlines in the region with weak profit margins and limited hedging could be hit hardest.
Fuel supply runs short. Fuel supply could diminish, particularly for Asian economies which rely heavily on crude imports from the Middle East. Carriers may rationalize capacity by reducing frequencies or cutting routes, or tanker fuel. Meanwhile, supplychain constraints would exacerbate given longer delivery times (particularly for air cargo and containers), port congestion, stoking inflationary pressures.
Demand wanes, trade disruption. A prolonged conflict in the Middle East could diminish demand for travel and disrupt trade flows due to security concerns and elevated prices. Carriers with direct exposure to the region would be most affected.
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Europe Healthcare
Industry Credit Outlook Update Europe: Healthcare
The sector holds steady despite looming hurdles
The rating headroom of major branded pharma companies is robust. Most companies committed to keeping leverage below 2.0x or 1.5x. While M&A is accelerating, partly driven by the expiration of significant patents from 2030, we expect European firms to adhere to these strict financial policies and avoid major leverage increases.
Continued demand for solid drugs supports revenue growth. This is especially the case for Glucagon-like peptide-1 receptor agonists (GLP-1s) and treatment for oncology and rare diseases. The sheer size of the market for GLP-1 drugs suggests ample capacity for multiple competitors
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Europe Telecomunications
Industry Credit Outlook Update Europe: Telecommunications
Consolidation efforts might intensify
Italy's tower business comes under pressure. While not our base case, an unfavorable resolution for Inwit in its renewal dispute with anchor tenants Fastweb/Swisscom and TIM could raise broader questions on the stickiness and reliability of contractual revenues that support the credit quality of the telecom tower business model. We expect clarity on one of the key legal cases by the beginning of 2027.
Will the data center gold rush hit Europe? Data center investment in the U.S. outstripped our expectations but remained relatively modest in Europe. As European policymakers pursue digital sovereignty and AI adoption increases, the demand for localized AI inference facilities will rise. This could present opportunities for rated telecommunications companies and dedicated infrastructure players, even though energy constraints in many European countries may limit the viability of large-scale AI training facilities.
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Europe Transportation
Industry Credit Outlook Update Europe: Transportation
Resilience amid geopolitical uncertainty
Peak season trading. The recent drop in fuel prices, resilient air travel demand, and elevated ticket prices, underpinned by the industry's constrained capacity, should offset lingering nonfuel cost inflation and support airline margins during the summer.
Persistent price volatility. We anticipate a gradual recovery in commercial shipping and energy flows via the Strait of Hormuz, but the pathway to peace is unclear and our forecasts are therefore uncertain. It will also take time for refineries in the Gulf to steadily restore production.
Pressure on container liner profitability. Despite recent surges, the sector faces a structural threat from oversupply. While we assume average freight rates will be 1%-3% lower in 2026, we forecast a further 10%-15% decline during 2027, which will likely weigh on long-term earnings.
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GCC Telecommunications
Industry Credit Outlook Update GCC: Telecommunications
Sector resilience amid war-related uncertainty
Capex intensity remains elevated at about 20%-25% of revenue. This is because of continued investments across subsea cables, data center investments, and 5G expansion investments in key markets. We expect the telcos to focus on scaling their existing infrastructure and network, and strengthening their digital portfolio offering through continued investments in adjacencies.
Demand for data sovereignty could accelerate digital infrastructure rollout. This could support the telecom sector as part of efforts to strengthen investment conditions in domestic infrastructure. In addition to data localization laws and AI adoption, this could open new revenue stream opportunities aligned with national strategic objectives.
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Global Digital Infrastructure
Industry Credit Outlook Update Global: Digital Infrastructure
Unprecedented growth, rising complexity
'Project on project'. Financing multiple interconnected projects--such as pairing data centers with on-site power or bundling graphics processing unit (GPU) costs with data center financing--streamlines capital. It also compounds execution and operational risks.
Concentration and circularity risk. A small set of hyperscalers, large operators and key suppliers dominate critical infrastructure, translating to tenant concentration, vendor bottlenecks and correlated capex cycles. At the same time, "circular" capital flows and crossholdings can reduce transparency and amplify contagion if sentiment turns.
M&A and strategic partnerships. We expect more consolidation, expansion, entrants and partnerships as players seek exposure, scale, technology and geographic reach.
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North America Health Care
Industry Credit Outlook Update North America: Healthcare
Legislative risk and M&A dominate the narrative
Continued developments on U.S. legislative and regulatory front. Continued threats of tariffs on Europe, implementation of MFN, challenges to H.R. 1, drug pricing pilot programs, Medicare drug price negotiation, and turnover at the FDA all have implications for the industry.
Midterm U.S. elections. Healthcare will be a major campaign issue. More-aggressive proposed legislation to control healthcare costs will increase uncertainty and add further pressure.
Pharma M&A. A more-aggressive pace to improve pipelines ahead of looming patent expirations and legislative uncertainty, could lead to increased pressure on ratings.
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North America Technology
Industry Credit Outlook Update North America: Technology
AI tailwinds boost IT spending
How software incumbents adapt and respond to AI-driven opportunities and risks. Entrants may gain market share, and slow adopters risk being left behind. We expect a shift toward consumption-based pricing from seat-based subscriptions. The change may pressure incumbents' recurring revenue, margins and cash flow.
Further exacerbation of memory price increases. Shortages have given memory makers strong pricing power, driving revenue growth despite modest volume gains. While this has boosted memory makers' financials, companies reliant on memory may ration supply and raise prices, potentially hurting their sales or profitability.
More long-term leases, power purchase commitments and residual value guarantees, which we all view as debt-like. In calculating credit metrics, we include obligations that behave economically like debt. These adjustments improve comparability across issuers and better reflect potential calls on cash--which may reach hundreds of billions in the case of hyperscalers--that could affect credit quality.
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North America Telecommunications
Industry Credit Outlook Update North America: Telecommunications
Telcos and cable face off in a battle over convergence
Potential for tighter thresholds for cable providers, reflecting heightened competition from telcos offering both fiber and FWA, continued loss of broadband subscribers, and downward pressures on ARPU and EBITDA.
Telcos race to increase footprint. AT&T and Verizon continue to deploy capital into fiberto-the-home buildouts, expanding their overlap with cable. AT&T approaches 60 million passings by 2030, equal to Comcast’s footprint today. In addition, fixed wireless access remains a powerful tool to reach value-based customers.
Lackluster growth in Canada. High competitive intensity and low immigration limit Canadian telecom services’ revenue growth, while EBITDA expansion is driven by cost cutting. Telcos are expanding into new geographies, and non-telecom businesses are growing EBITDA. Other deleveraging paths include hybrid issuance or structured jointventure transactions, which can lead to cash flow leakage and have limited benefit to credit metrics
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North America Transportation
Industry Credit Outlook Update North America: Transportation
Pricing power supports earnings resilience
Strategic investments could boost earnings post 2026. Airline modernization efforts-- replacing aging fleets, upgrading cabins, and adopting lower-emission technologies-- could ultimately enhance operational reliability and boost earnings. Premium revenue growth has so far been resilient and exceeded main cabin growth materially.
Freight demand is rebalancing between various modes. Trucking capacity cuts and higher fuel surcharges are causing shippers to rethink strategies, with loads shifting to less-than-truckload and intermodal/rail. While core truckload pricing gains are likely to stick, volumes could rebalance again depending on future rail service and energy prices.
Sustained unit cost inflation. The ability to offset sustained inflation in labor, maintenance, and regulatory costs with operational and technological improvements (including AI) will be pivotal.
Infrastructure & Utilities
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Europe Transportation Infrastructure
Industry Credit Outlook Update Europe: Transportation Infrastructure
Credit stability faces downside risks from lackluster economy
Long-term macroeconomic and energy uncertainty. We are monitoring the war in the Middle East, as a prolonged energy supply shock could exacerbate inflation, depress economic activity, and potentially push large EU economies into recession.
Summer season resilience. A critical metric for assessing credit metrics, particularly for airports with high non-aeronautical revenue exposure, could be the increased airfares on summer travel demand.
Margin protection via tariff indexation. We will monitor how effectively operators can pass on increased energy and operational costs to users to protect their credit metrics amid energydriven inflation.
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Europe Utilities
Industry Credit Outlook Update Europe: Utilities
Navigating geopolitics amid the capex supercycle
How power grid infrastructure costs can be optimized. We are monitoring efforts, such as in Germany, to lower energy-transition infrastructure costs, on both the electricity and hydrogen networks, by tens of billions of euros.
Exposed investments. Capex financing with a credit-supportive mix of equity, traditional hybrids, and debt is key for power, hydrogen, and water infrastructure deployments. We may or may not treat the new wave of innovative financing instruments as equity depending on their individual features.
Rating headroom currently supports some ratings, but erodes balance sheet strength. High and growing capex, interest rates, and dividends erode balance sheets, especially of power grids.
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North America Regulated Utilities
Industry Credit Outlook Update North America: Regulated Utilities
Credit quality is stabilizing
Affordability concerns. Although the 2025 electric bill, at approximately 2.1% of household income, remains well below the 2010 peak of roughly 2.5%, that comparison offers limited reassurance in today’s higher-cost environment. Regardless of historical benchmarks, the perception that electric bills are high has become the industry’s new reality. Reversing this perception will be challenging, particularly given structural cost pressures, potentially pressuring the industry’s credit quality.
Record-high capital spending. Capital spending reached a new record of approximately $244 billion in 2025, and we project it will increase to about $335 billion by 2028. To maintain credit quality, the industry must continue to finance these rising capital expenditures in a credit-supportive manner.
Management of regulatory risks. The industry strategically reduced the number and amounts of 2026 pending rate case filings. In November 2026 there will be 36 gubernatorial elections, and having a disproportionally high number of rate case filing outstanding could have been challenging for the industry.
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North America Transportation Infrastructure
Industry Credit Outlook Update North America: Transportation Infrastructure
Stable and resilient performance despite winds of change
Managing shifting behaviors. We continue to monitor "peak spreading" caused by hybrid work and off-peak travel shifts. At the same time, we observe favorable management actions in offerings to road users, such as seen in 407 International and commercial optimizations at Aerostar Airport Holdings LLC.
Increased capital expenditures and risks with construction. There is a wave of new megaprojects encompassing road, airports, and rail. We are particularly focused on the mitigation of supply chain risks and labor shortages during construction, particularly given the buildout in the Digital sector, which has an enormous spend underway.
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North America Unregulated Power
Industry Credit Outlook Update North America: Unregulated Power
Demand for power is insatiable and supply is tight
Behind-the-meter (BTM) power solutions. While prevalent in refining and LNG industries, BTM solutions have not been tested for loads that fluctuate as wildly as training data centers. We see operating risks given limited track record and will monitor ensuing credit risks for generators.
Changing capital allocation decisions. We see some move away from share repurchases. We expect significant new-build spending and are monitoring how long-term contracts are being struck to underpin these decisions.
Pressure on the grid. The changing load shape underscores the need to maintain a reliable share of synchronous power generation capacity and investments in power storage capacity.
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Asia-Pacific Transportation Infrastructure
Industry Credit Outlook Update Asia-Pacific: Transportation Infrastructure
Jet-fuel price, availability may dampen airport demand
Middle East conflict can lead to demand drops. As a major oil and gas importing region, Asia-Pacific countries would see some lagged impact on various sub sectors and regions from conflicts dragging or escalating.
The intensity of secondary effects will depend on how long conflict persists. Indian airports have higher exposure to direct Middle East travel. Secondary effects of jet-fuel prices, availability, and passenger sentiment are likely to weigh on traffic growth at international hubs and regional routes. Shipping costs and disruptions are manageable if short lived. Extended tensions could present risks to supply and prices from government intervention or resource control measures.
Higher financing costs can affect metrics. Currency and swap rate movement can hurt those more reliant on dollar funding, hedging, or large refinancing or capex needs.
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Asia-Pacific Utilities
Industry Credit Outlook Update Asia-Pacific: Utilities
Asian coal power rebounds amid global LNG supply shocks
Asia markets disrupted by fuel shortage and margin squeeze. Prolonged war and infrastructure damages in the Middle East are triggering energy supply shortages, leaving gas-reliant markets such as Taiwan and Singapore highly vulnerable. Higher spot purchase and less timely cost pass-through will squeeze utilities’ margins. Some markets, such as mainland China and Korea may exhibit cost pass-through delays.
Supply constraints will undermine decarbonization progress. In the short-term, coal use will rise to substitute gas-fired power in major Asia markets. Supply constraints in critical materials, such as diesel, may disrupt manufacturing and suppress demand, causing potentially more delays for energy transition progress. In addition, renewables are not readily substitutable due to limited power grid and storage capacity. This risk is rising in China, creeping in India, and evident in Australia. In the longer term, some net-importing Asian markets may resume or even accelerate their energy transition to diversify energy sources. For example, Japan decided to extend support to additional nuclear plant investment projects in May