Activity in emerging market economies is picking up as lockdowns are gradually easing, but the recovery is still very slow. Financial conditions are improving but risk aversion persists.
Regarding U.S. transportation infrastructure, we believe the public transit and airport sectors are the most vulnerable to downward rating pressure in the near term. Our baseline activity estimates for this year and next relative to pre-COVID-19 levels show annualized declines of approximately 55% and 30% for public transit, 50% and 25% for airports, 45% and 15% for parking, 25% and 10% for toll roads, and 20% and 10% for ports.
Workplace culture is more fluid now than ever, and corporations will likely need to make significant financial and time investments in their employees to remain competitive in the post-pandemic labor market. Ultimately, we believe changing workforce dynamics will have profound future implications on the workplace structure, health and safety benefits offered to employees, and technological innovation.
Here's Global Job Market outlook due to Corona Virus.
Webcast Series And Weekly Digest
S&P Global Ratings is launching a series of weekly webcasts--Coronavirus Insights: Friday Credit Focus. On Fridays, we will provide the market with updates on our view of how the current unprecedented circumstances are affecting credit risk and ratings across asset classes.
We are also publishing a COVID-19 Weekly Digest, which spotlights key developments, economic and credit market updates, and asset class trends on a weekly basis. See the latest published June 3 here.
Rating Actions
In response to investors' growing interest in the coronavirus and its credit effects on companies, S&P Global Ratings is publishing a regularly updated list of rating actions it has taken globally on corporations and sovereigns. These are public ratings where we cite COVID-19, oil prices, or both as a factor. The latest edition is: "COVID-19: Coronavirus- And Oil Price-Related Public Rating Actions On Corporations, Sovereigns, And Project Finance To Date," published June 3.
Structured finance ratings are also affected due to the COVID-19 crisis, see "COVID-19 Activity In Global Structured Finance For The Week Ending May 29, 2020," published June 4. For specific consideration of CLOs, see "Sector Averages Of Reinvesting U.S. BSL CLO Assets: COVID-19-Related Corporate Downgrades Caused Significant Deterioration In First-Quarter 2020," published May 18, "U.S. CLO Exposure To Negative Corporate Rating Actions (As Of May 31, 2020)," published June 2, "A Breakdown Of U.S. CLO CreditWatch Negative Placements (As Of May 19, 2020)," published May 20, and "COVID-19: Coronavirus-Related Public Rating Actions On Nonfinancial Corporations And Affected European CLOs," published June 5.
Moreover, "COVID-19 Activity In U.S. Public Finance," published June 3, summarizes the sector's rating actions and publications to date. For international public finance, see "Overview Of International Public Finance Rating Actions Since March 10, 2020," published May 21.
Regarding sovereigns, see "An Overview Of Sovereign Rating Actions Related To COVID-19," published May 11.
"Credit FAQ: The Ratings Process And The COVID-19 Pandemic," published April 2 and "Top 10 Investor Questions On Our Ratings Process," published June 4 address some questions about the pandemic's effect on S&P Global Ratings and how our credit analysis and surveillance are proceeding during this time. "Q&A: Government Support, Forbearance, And Corporate Liquidity Analysis In A Time Of Stress," published April 9, provides a summary of certain elements of our criteria and rating definitions relevant to understanding how we may assess government support, forbearance, and corporate liquidity in a time of credit stress.
COVID-19 Infections
The number of COVID-19 confirmed cases has surpassed 6.6 million worldwide, with the death toll exceeding 391,000. However, there are positive signs that social-distancing measures are succeeding in curbing the spread--the daily growth of COVID-19 confirmed cases has slowed down in Europe and North America in the past few weeks. Around 43% of the confirmed cases have recovered.
Key Takeaways From Our Relevant Published Reports
Credit Conditions
1. Credit Conditions Asia-Pacific: COVID-19: Flatter Growth, Tougher Recovery, April 22, 2020
Overall. We expect GDP growth for Asia-Pacific to fall to 0.3% in 2020 before a gradual recovery, implying a two-year income loss of over US$2 trillion. In 2020, corporates could see on average 10% to 15% less revenue, and banks may incur over US$400 billion in extra credit costs because of the outbreak.
Risks. Our top risks are stricter and longer COVID-19 measures, higher debt leverage, tighter financing conditions for lower-grade issuers--particularly in U.S. dollars--and that the U.S.- China dispute will reignite.
Credit. While government monetary and fiscal actions provide some buffer, the slump in consumer and business demand will strain borrower credit quality, resulting in an escalation in missed or deferred payments and, for banks, higher nonperforming loans.
2. Credit Conditions Emerging Markets: Longer Lockdowns, Heightened Risks, April 23, 2020
Overall: Credit conditions continue weakening across emerging markets (EMs); we now expect a deeper global recession and a slower recovery. COVID-19 has rapidly advanced in EM economies, and governments are implementing social distancing measures to contain the epidemic, halting most business activities and severely shocking employment.
Risks: The risk of policy mistakes is on the rise, given that failure to contain the pandemic could lead to longer lockouts at some point and a deeper economic shock. Moreover, the absence of proper economic stimulus could derail recovery and prolong the economic downturn. Most EMs have limited room to maneuver.
Credit: The combination of extended lockdowns in developed market (DM) economies and domestic social distancing is deepening the shock to EM economies. Longer lockdowns could have a severe impact on household income, corporations' liquidity, and banks' asset quality.
3. Credit Conditions Europe: The Lowdown On Lockdowns, April 27, 2020
Paul Watters, CFA, London, (44) 20-7176-3542, paul.watters@spglobal.com
Overall: Extended lockdowns, a slower pace of normalization, and key trading partners embroiled in the same predicament have all contributed to a very sharp downward revision to European economic growth for 2020. We expect a deeper two-quarter recession in the eurozone with full-year growth falling by 7.3%.
Risks: Top risks remain the pandemic not being contained despite all efforts, a scarcity of financing for indebted corporate borrowers, the re-emergence of global trade tensions including between the EU and U.K., and asymmetric fiscal costs from the pandemic placing renewed pressure on the EU's cohesion.
Credit: While emergency measures by the authorities to provide short-term funding support for businesses and households are important, they do not drive improvement in business conditions or financial risk profiles that are typically the main drivers for credit performance. Wealthy, diversified sovereigns with reserve currencies should be able to rely upon negative real refinancing costs to weather the initial fiscal shock. Longer-term damage in their ability to create wealth would see creditworthiness suffer.
4. Global Credit Conditions: Rising Credit Pressures Amid Deeper Recession, Uncertain Recovery Path, April 22, 2020
Sharp but short? Extended coronavirus-containment measures are pushing the world into the deepest recession since the Great Depression. Although we expect the drop in economic activity to be sharp but fairly short, the path to recovery remains very uncertain in its timing and trajectory, until an effective treatment or vaccine are in place.
Corporates take largest hit. Corporate credits were first hit by the sudden stop in economic activities and the collapse in oil prices, with a disproportionate effect on credits at the lower end of the rating scale and in the most exposed industries. As we entered the crisis with a record level of credits rated 'B' and below, this will likely push the speculative-grade default rate above 10%.
Banks and structured finance aren't immune. Banks entered the crisis with strong balance sheets and are generally expected to show resilience, but they aren't immune to the longer term economic implications. Ratings effects on securitization will reflect the trend in underlying assets.
Emerging markets facing a severe shock. Domestic measures to contain the rapid spread of the pandemic and the impact of extended developed-economy lockdowns on trade and tourism, compounded with the collapse in oil price, have pushed many emerging markets into recession. Risk aversion triggered unprecedented capital outflows, tightened financing conditions and pressured currencies. With external risks remaining on the downside, some countries are better positioned than others to cope with burgeoning pressures.
Policy choices matter. Unprecedented fiscal and monetary support are critical to preserve the economic fabric and well-functioning capital markets, thereby supporting the chances of a stronger path to recovery. But it comes at the expense of higher government debt and puts the onus on policy choices in the handling of the health issue, the degree and nature of support to the economy, and, later, the exit path—all of which will have a significant impact on the recovery trajectory.
5. Credit Conditions North America: Pressures Persist, Risks Resound, April 23, 2020
David C Tesher, New York, (1) 212-438-2618, david.tesher@spglobal.com
Overall. We continue to expect credit conditions to remain extraordinarily difficult at least into the second half of this year. Amid the economic stop associated with coronavirus containment and mitigation measures, companies' cash flows and liquidity have, in many cases, disappeared and borrowing conditions remain oppressive to many others.
Risks. As the outbreak spreads unevenly across U.S. regions, containment measures may need to stay in place longer than planned, which would exacerbate already-dire economic conditions. The risk that the drag on business activity and cash flow for borrowers across S&P Global Ratings would thus persist into next year, are firmly on the downside.
Credit. Credit quality has deteriorated across nearly all nonfinancial corporate sectors, and those most dependent on consumer discretionary spending face an existential crisis.