Global business conditions are generally favourable, but muted, says Moody’s Investors Service in a new report.
Most industry sector outlooks are stable, 14 are positive, and just four are negative, the rating agency says in a new report. It notes that there were just four changes among the 55 non-financial industry sector outlooks it maintains worldwide. The sector outlooks reflect the rating agency’s view of the fundamental business conditions for an industry over the coming 12 to 18 months.
“An air of cautious optimism continues to settle over the broad group of corporate industries we cover, hence we saw few outlook changes in the first three months of this year,” says Mark Gray, managing director of global corporate finance at Moody’s. “The global economic recovery remains fragile, though is poised to accelerate.”
Over the next year, rising interest rates pose some risk, Gray notes. For example, Moody’s says that while the outlook for U.S. homebuilding remains positive, the sector is less robust than it was at the end of 2013, highlighting risks as the Federal Reserve unwinds its quantitative easing program. “A discernible slowing in U.S. homebuilding would hit numerous other sectors that depend on consumer confidence, from consumer durables to restaurants and lodging and cruise,” it notes.
Moody’s also reports that individual sector operating profit (EBITDA) forecasts for the next 12 months also show good but slightly diminished momentum. The 3.5% median EBITDA growth forecast matches Moody’s central scenario for 2014 GDP expansion in the G20 economies—and represents a brisker pace of growth than in 2012 or 2013, it says, although this is down from last quarter’s 3.9% forecast.
One key sector that had its outlook revised to positive from stable during the first quarter is the North American diversified manufacturing sector, which Moody’s says suggests that the chances of a broader favourable move are improving.
“A positive outlook for North American diversified manufacturers is one of the best economic omens we see, as it signals sustainable underlying economic activity,” Gray says.
Signs of sustainable activity will enable central banks to continue reducing their support, the report notes. However, it says, stronger growth in advanced economies “could result in painful adjustments in certain emerging markets, with currency declines leading to inflation and higher interest rates. While near-term risk is moderate, a dip in performance in some of the biggest emerging economies could ultimately dampen performance for many sectors that depend on the global marketplace.”