Moody's Investors Service has today changed its outlook on the EMEA manufacturing sector to stable from negative, reflecting companies' higher operating profits, and stabilising end-market demand and commodity prices. The rating agency forecasts operating profitability growth for EMEA manufacturers of nearly 8% in 2016 and 5% in 2017.
Moody's report, titled “EMEA Manufacturing: Profit Growth, Improvement in End Markets and Prices Support Stable Outlook” is available on www.moodys.com.
“The manufacturing sector's return to profit growth is an inflection point that supports a stable industry outlook,” says Martin Kohlhase, a Vice President — Senior Credit Officer at Moody's. “The restructuring measures and cost-cutting drives of the past few years have begun to flow through to manufacturers' bottom line results.”
The recent improvement in crude oil and iron ore prices could stabilise important end-markets for some EMEA manufacturers, particularly those with exposure to commodity producers and commodity-exporting countries such as Metso Corporation (Baa2 stable), Smiths Group plc (Baa2 stable), and Weir Group Plc (The) (Baa3 negative). This could ease pressure on profitability and could lead to catch-up investments and higher demand for their goods and services.
However, weaker economic growth prospects in emerging markets, where large European manufacturers obtain around one-third of their revenues, pose a downside risk to companies in the short term, although the rating agency expects that emerging markets' growth will stabilise into 2017.
In particular, a slowdown in Chinese growth could cause sales and revenues to decline for the EMEA manufacturing sector in the near term owing to declining Chinese demand. Longer term, Moody's expects that Chinese manufacturers will become more visible exporters and therefore competitors to their EMEA counterparts, increasing the potential for structural price erosion, as a result of the country's ongoing economic transition towards a service-led economy supported by domestic demand.
The material has been provided by InstaForex Company – www.instaforex.com