Sector Outlooks for 2020 Are Gloomier on Economy, Trade

Tuesday, February 18, 2020   /01:58 PM  / By Fitch Ratings / Header Image Credit:  Fitch Ratings


21% of sector outlooks in our global outlooks compendium are negative, up from 8.5% at the start of 2019, Fitch Ratings says. A slowdown in economic growth, persistent trade tensions, and a prolonged period of low interest rates are among the most frequently cited reasons for weaker sectoral performances.


Stable outlooks are still assigned to the vast majority of sectors, but the share of positive outlooks remains below 2%. The higher share of negative outlooks reflects increasing downsides risks across the portfolio, as well as some idiosyncratic sectoral pressures, such as changing regulations in various corporate sectors.


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All sovereign sector outlooks are stable. We expect widespread monetary easing in 2H19 to be followed by varying degrees of fiscal easing in 2020. The trade dispute between China and the US makes it more difficult to calibrate domestic policy settings. An accommodative macro policy backdrop in developed markets will be growth-supportive, but unable to fully offset the global effects of uncertainties around trade policy.


Among corporates, steel and telecommunications are adversely affected across many regions by regional geopolitical uncertainty, trade tensions and muted growth expectations. For the steel sector this also includes evolving regulations and policies, including environmental requirements. Telecoms also face high capex needs ahead of the 5G investment cycle. Several outlooks in other industries, many of which are cyclicals in EMEA, have turned negative, leading to a negative sector outlook on Western European investment grade corporates.


Outlooks in global infrastructure remain stable, benefiting from mostly predictable business models, with the exception of UK whole business securitisations, where Brexit-related uncertainties contribute to weaker growth expectations.


Sector outlooks on certain regional insurance companies, non-banking financial institutions (NBFIs) and emerging market banks have turned negative largely due to macro pressures that weaken the operating environment, and low interest rates. Sector outlooks for financial institutions broken down by larger regions are mostly stable, except for Latin American (LATAM) and Western European banks. LATAM banks' operating environments will be affected by political uncertainty and social discontent, while weak GDP growth and continued low interest rates will put pressure on Western European banks' performance.


Several asset performance outlooks have deteriorated to stable/negative in EMEA structured finance, partly due to macro-economic deterioration and also reflecting asset-specific risks, such as residual car values. Asset performance outlooks are stable for the rest of the world.


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