Australia Corporate Outlook Stable
Australia's corporate sector outlook is stable over the next 12 to 18 months although companies will stay cautions given the global economic uncertainties, according a report from ratings agency Moody's Investors Service.
"We expect revenue and earnings growth to prevail, helped by the demand for commodities, and a high employment rate," Ian Lewis, Moody's Vice President and Senior Credit Officer said in a company statement.
Lewis said Australian firms will likely stay cautious until the clear emergence of a recovery from uncertainties in the global macro-environment due to renewed signs of weakness.
The Moody's outlook on Australia's corporate sector focuses on major rated companies in the real estate, telecom, retail and consumer, airlines, metals and mining, oil and gas, and building materials sectors.
According to Moody's, the persistently strong Australian dollar could weaken, and increase volatility in earnings of Australian companies. Moody's, however, believes most issuers are well positioned to manage the impact.
"For the retail sector we expect bouts of weakness as consumers remain concerned about economic developments offshore, however overall we expect retail sales to continue to hold up and grow at around GDP, but not much faster," Lewis said.
Moody's also expects liquidity for the corporate sector to remain solid.
"Overall, Australian issuers can manage their refinancing over the next several years, with investment-grade issuers better equipped and more prepared than before to tap diverse global debt markets," the official said.
Moody's expects that austerity measures implemented by Australian firms during the financial crisis are likely to continue given the uncertainty in the global economy. It said this austerity measures will hinder mergers and acquisitions.
It said input costs are unlikely to come down soon but wage levels and potential strikes could hurt some companies.
"We expect regional inflationary pressures, high oil prices, and strong demand for commodities to lead to input cost pressures for many manufacturers, transport companies, and others lacking strong contractual pass-through or offsetting higher product prices," Lewis said.
Moody adds that given the increase in execution risk on large and complex capital projects, cost overruns and delays will become more prevalent, especially in the construction and resources sectors.