Europe ‘Treading Water’ as Corporate Revenue Growth Stalls

Europe’s corporate sector mirrors its economy in appearing to be going nowhere fast, reports Standard & Poor’s (S&P).

“Despite a multi-year process of refinancing, retrenchment and substantial and ever more unorthodox monetary stimulus, it is hard to say that Europe is doing much more than treading water,” comments the credit ratings agency (CRA) in its just-published ‘Corporate Credit Outlook 2015’.

“Global growth will continue to be supportive but we expect the European corporate sector will have to take a more proactive stance to securing growth.”

S&P adds that its analysis shows that European revenue growth has been static since 2012. Recent trends are worse still in the weaker performing major economies such as France and Italy.

“While we expect better gross domestic product (GDP) growth in 2015 for all the main continental European economies, and for UK growth to continue to be relatively robust, this will not be enough to drive a recovery in domestic revenues. This remains a weak and patchy recovery,” S&P concludes.

Among the report’s main findings:

• Mergers and acquisitions (M&As) to continue to rise as companies look abroad to generate growth in a stagnating home environment.
• The outlook for capital expenditure (capex) has deteriorated due to cuts in crucial energy sector, with companies still reluctant to spend their substantial reserves.
• Default rates to remain low, but some deterioration in credit quality is expected.
• A dramatic collapse in commodity prices to help profitability of sector as a whole.
• European companies to suffer from low inflation or even deflation over the next couple of years.

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