November 13, 2020
By Marc Jones
LONDON (Reuters) – An early coronavirus vaccine could limit some of the damage country and company credit ratings are facing, S&P Global said on Friday, although more progress is needed before the downgrade warning levels can be lowered.
S&P has made over 2,000 downgrades or outlook changes this year due to the pandemic. What is more, it still has negative outlooks – downgrade warnings in rating agency speak – on a third of the 4,400 companies, countries and banks that it rates.
“It’s obviously good news,” Alexandra Dimitrijevic, S&P’s Global Head of Research, said of this week’s vaccine breakthrough by Pfizer and German partner BioNTech.
“We think this probably increases the upside that there might be broad availability of a vaccine earlier,” Dimitrijevic added. “But we still think there are a lot of uncertainties and challenges.”
Those challenges, such as mass production and distribution, mean it is too early to make any rating or economic forecast changes.
S&P’s most recent forecasts in September presumed a vaccine would be widely available by mid-2021 and drive a 5.3% rebound in global growth next year. Since then, however, the rapid spread of the virus has forced more and more countries back into lockdowns.
“There could be some downwards revision for Q4 and potentially Q1 forecasts if the second waves persist,” Marion Amiot, one of S&P’s senior economists, said. On the flip-side, the rest of 2021 could be revised up if the vaccine comes fast.
On the ratings outlook, Dimitrijevic said: “If the situation normalises earlier… that might allow us to stabilise some of these (negative) outlooks earlier, and allow for some credits at the lower end of the spectrum to avoid a further deterioration in credit quality,” she said, referring to rating cuts.
“But we would take any decision on a company by company approach and some industries and geographies might still undergo significant credit pressure until the situation fully normalises, which could take well into 2022 or later for some.”
Sectors likely to remain under most pressure include commercial property and mass public transport as people stay working from home. Airlines which rely on business travel and some parts of the leisure sector are likely to struggle too.
“If we were all vaccinated by spring it would be certainly good for growth and for companies, but there are still many challenges to get there.” Dimitrijevic said. “The sooner (the vaccine is widely available), the better”.
(GRAPHIC – More than 2000 rating downgrades due to COVID and oil slump: https://fingfx.thomsonreuters.com/gfx/mkt/ygdpzbwwzpw/Pasted%20image%201605274843306.png)
(Reporting by Marc Jones; Editing by Nick Macfie)
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