The first quarter of 2014 saw just four changes among the 55 non-financial industry sector outlooks it maintains worldwide, Moody's Investors Service says in a new report, "Cautious Optimism Persists for Corporate Industries, but Global Momentum Slows." Most outlooks remain stable, while 14 are positive and just four are negative.
"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."
Moody's industry sector outlooks reflect the rating agency's view of the fundamental business conditions for an industry over the coming 12 to 18 months.
Over the next year, rising interest rates pose some risk, Gray says. While the outlook for US homebuilding remains positive, for example, 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 US homebuilding would hit numerous other sectors that depend on consumer confidence, from consumer durables to restaurants and lodging and cruise.
Moody's individual sector EBITDA forecasts for the next 12 months also show good but slightly diminished momentum, the report says. The 3.5% median EBITDA growth forecast matches Moody's central scenario for 2014 GDP expansion in the G-20 economies—and represents a brisker pace of growth than in 2012 or 2013—but is down from last quarter's 3.9% forecast.
Moody's revised its outlook for North American diversified manufacturers to positive from stable during the first quarter of 2014, suggesting that the chances of a broader, lockstep move in a favorable direction 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.
And signs of sustainable activity will enable central banks to continue reducing their support, the report says.
Stronger growth in advanced economies could however 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.