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 expectwidespread monetary easing in 2H19 to be followed by varying degrees of fiscaleasing in 2020. The trade dispute between China and the US makes it moredifficult to calibrate domestic policy settings. An accommodative macro policybackdrop in developed markets will be growth-supportive, but unable to fullyoffset the global effects of uncertainties around trade policy.

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

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

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

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