Moody's: Most EMEA corporate sectors still stable but negative pressure has increased

The overall outlook for the EMEA non-financial corporate sectors remains stable for 2016, but risks have increased because of 'lower for longer' commodities prices and the knock-on effects on oil-exporting countries, according to Moody's Investors Service. The stable view reflects the rating agency's expectations that fundamental macro-economic factors in EMEA, particularly in the euro area, will remain largely unchanged. 

Just slightly more than half of the Industry Sector outlooks (ISO) covering EMEA Corporates have remained stable since December 2015, with only European and CIS Steel, Global Shipping, and North American and EMEA Chemicals turning negative. As a result, there is an overall stable balance, though it is becoming more skewed to the negative. Of the 23 ISOs that are either global or EMEA-specific, 12 are currently stable, three positive and eight negative. 

"The number of negative ratings outlooks or ratings on review for downgrade is at its highest level since Q3 2013, primarily driven by the commodity and oil and gas sectors where most ratings are or have been on review for downgrade", said Jean-Michel Carayon, Moody's Senior Vice President. "However, we note that slightly more than half of the industry sector outlooks in the region are still stable", added Mr Carayon. 

Moody's report titled "Non-Financial Corporates -- EMEA 2016 Outlook Remains Stable Overall, But Negative Pressure Has Increased" is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. 

"We forecast that downgrades could materially outnumber upgrades in EMEA in 2016 because of the rating migration of commodity and oil and gas companies", explained Mr. Carayon. "Our central scenario is that the spike in downgrades should be concentrated on the first four (or five) months of the year once the reviews of companies in these sectors and emerging markets are concluded, after which rating actions will be more balanced over the rest of the year. 

Despite the likely increase in downgrades, only a very small number of fallen angels are expected in EMEA this year. 

Moody's also sees the default rate for EMEA non-financial corporates increasing towards the high end of the previously expected range (2%-3%), and even possibly exceeding 3% in 2016, with a majority of the defaults likely to take the form of distressed exchanges.