While Fitch Ratings says that it expects economic recovery starting in 2010, the rating agency doesn’t foresee easier credit conditions until 2011.

The rating agency’s latest global economic outlook anticipates positive economic growth from 2010, but it says that due to the time lag in achieving “trend” growth it does not forecast a return to more benign credit conditions for its corporate portfolio until mid-2011.

As a result, it says “the current heavily negative bias to corporate rating actions represents a forward-looking assessment, rather than a reaction to current earnings reports.”

“While our ratings are assigned on a through-the-cycle basis, we are currently witnessing super-cyclical pressure on business and financial profiles in a number of sectors,” notes Richard Hunter, managing director of Fitch’s corporate ratings for Europe and Asia.

It notes that the issuers most exposed to downgrades, “will be those where economic conditions both generate a material increase in leverage (through gross debt increases or depletion of operating cash flow), and, also, where a rebound in future profitability will be unlikely to restore the financial profile within the foreseeable future. Also more at risk are sectors or companies where an individual business model or industry position is likely to exit the current recession in a materially impaired condition. Typically, vulnerable companies are more likely to be in the manufacturing and media sectors.”

Fitch stresses that negative forecasts do not, however, lead uniformly to negative rating actions, and that many sectors will be markedly less exposed to downgrades.

“A number of companies and sectors also started into this recession from high bases,” adds Hunter. “For example, oil companies have enjoyed a number of years of unusually high returns, and are reasonably well-placed to endure optically dramatic falls in the revenue and free cash flow lines.”

Also, Fitch stresses that a number of sectors, such as utilities, enjoy business risk profiles which are particularly resilient, in relative terms, during recessions.

IE