Moody’s Sees Stable 2018 Outlook for GCC Firms

Higher oil prices and continued public spending support the stable 2018 outlook on non-financial companies in the GCC, said Moody’s in a new report. Conversely, the 2018 outlook for companies in both Turkey and South Africa is negative, it added.

"Improving oil prices, which are narrowing fiscal deficits, as well as an ongoing commitment to public spending and a supportive stance towards government-related issuers will underpin the stable outlook on GCC companies over the next 12 months," said Rehan Akbar, vice president -- senior analyst at Moody's.

"Limited clarity on policy direction and on the pace of implementation of structural economic reforms, as well as political risks and high currency volatility drive the negative 2018 outlook for Turkish companies. Similarly, the negative outlook for firms in South Africa reflects continued political and policy uncertainty, and depressed business and consumer demand," added Akbar.

Key takeaways:

• Rated GCC corporates will continue to benefit from strong competitive positions and government support.

• Oil prices above US$50/bbl will allow countries with large fiscal buffers and small populations, such as the UAE, Kuwait and Qatar, to implement fiscal reforms at a slower pace than their regional peers.

• Fewer growth opportunities will drive GCC companies toward consolidations and acquisitions outside the region, as well as investments in increasing vertical integration, and corporate focus on costs.

• GCC mature state-owned corporates are increasingly looking to diversify funding sources, which could lead to an uptick in capital market activity.

• Saudi Arabia’s policies to increase workforce participation of its citizens will open up opportunities for certain sectors, but create challenges for others.

• In Turkey, corporate growth will be moderately lower next year after the accommodative fiscal policy that temporarily stimulated the Turkish economy in 2017 comes to an end.

• Export-oriented manufacturing companies in Turkey will see growth opportunities as demand in Europe increases, supported by a weaker lira.

• Companies in the tourism, hospitality and aviation sectors will be buoyed by improvements in the security situation, but the environment will remain potentially volatile.

• In South Africa, the fragile macro environment as well as political and policy uncertainty heighten downside risks for companies in the country. However, rated firms will remain resilient -- but not immune -- largely thanks to diversification, market dominance, and healthy credit profiles.

• Commodity (e.g., gold, platinum and diamond) exporters will continue on stable to positive trajectories, benefiting from strong momentum in global growth and low US dollar costs due to rand weakness.

• Deterioration in the credit quality of the sovereign could weigh on the credit profiles of corporates exposed to the domestic economy.