Moody’s expects 2012 to be a challenging year for non-financial corporate borrowers in Europe, the Middle East and Africa (EMEA).
The main drivers of this view are the European sovereign debt crisis, the weak macroeconomic climate, falling consumer confidence and deteriorating funding conditions.
We expect that downgrades will continue to substantially exceed upgrades in the coming year for both investment-grade and speculative-grade corporates. – Jean-Michel Carayon, a Moody’s Senior Vice President
Moody’s expects that financial market turbulence, fiscal consolidation efforts and banking sector deleveraging will continue to constrain growth into 2012. The rating agency’s forecasts for the euro area in particular carry a high level of uncertainty, with significant downside risks which carry negative implications for corporate creditworthiness.
Moody’s notes that the refunding needs of speculative-grade issuers are significant and their current solid liquidity will serve as a buffer only in the short term. A prolonged period of restricted market access could be problematic for many speculative-grade companies in terms of maintaining adequate liquidity and thus their ratings.
Based on current macroeconomic scenarios, Moody’s projects that the speculative-grade default rate in 2012 will rise modestly from the low level (less than 3%) recorded in 2011. If more pessimistic macro scenarios come to pass, and the euro area enters a recession, the default rate might rise to the high single digits.
Moody’s notes that, to some extent, emerging markets remain a mitigating factor against weak demand in the euro area for geographically diversified corporates. However, there is a risk that those markets will be increasingly affected by Europe’s sovereign debt crisis and an economic downturn in Europe.