Issue: Jul 2009


Global Corporate Sector Faces Significant Recovery Challenges



by Moodys Investor Services

Despite general signs that the global economy is stabilizing, most corporate sectors face significant hurdles on their path to economic recovery, said Moody's Investors Service in the first of a series of new reports that look at the topic of recovery from a global perspective.

"Overall, conditions remain weak globally for the consumer, primarily for the same reasons as in the U.S.," said Moody's Senior Managing Director Mike Rowan. "Rising unemployment, reduced access to credit, and negative trends in wealth due to falling asset prices all weigh heavily on most developed economies."

The ratings agency's special report provides an overview of the global economic outlook and addresses key issues across various industries such as: how today's credit picture differs from that of a few months ago, whether improvement in credit conditions is well-established or precarious, and conditions that must be in place to improve credit conditions further.

"Despite some encouraging trends, a total economic recovery is still early," said Rowan. For instance, as a tumultuous year for automotive manufacturers continues with pockets of improved sales figures in some regions, Moody's is maintaining its forecast for a 13% drop in global sales volumes in 2009, expecting car sales to range from 55 to 57 million vehicles.

For retail, the credit picture remains challenged, with limited evidence of recovery as consumers' ability and propensity to spend remain weak, said Moody's. At the same time, the consumer durable sector remains vulnerable to further economic setbacks, rising unemployment, and the potential for higher energy prices and interest rates.

In addition, while the housing downturn appears to be showing signs of stabilization, a closer look at the indicators reveals a more sobering state of the industry, especially for the North American homebuilders, said Moody's. Elsewhere, in Brazil and China, growth seems to be back on track though the economic downturn and credit availability may still pose an impediment to a more robust and sustained recovery.

For the media industry, spending on state and local political races, the 2010 World Cup, and a potential peak in the U.S. unemployment rate by mid-2010 offer hope that advertising trends will improve as the next year progresses, said Moody's. While the European ad markets are also soft with declines in a similar range as the U.S., Asia and Latin America are holding up better and in some cases, even growing.

This report is the first in the "Economic Recoveries" series of publications from Moody's Investors Service, which is available on Moodys.com. Companion reports examining the economic recovery of financial institutions, the public finance sector, and structured finance will be published later this week.

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