LONDON--(BUSINESS WIRE)--KBRA UK (KBRA) publishes a research report exploring the performance of European corporations as they navigate a challenging environment. Despite the increasing likelihood of a recession in Europe―owing to the impact of inflation and rapid rate rises―companies are continuing to produce, which suggests a potential soft landing. Economists are regularly pushing out the timing of any sort of slowdown, as economies continue to show growth despite expectations. This is partly because corporate profitability in aggregate is more robust in many sectors across Europe than originally assumed. However, the impact of higher interest rates for longer is starting to bite, with margins and corporate production in Europe showing signs of a slowdown. This is likely to have a greater impact on non-investment grade corporates, particularly those with floating rate exposure. In this KBRA report, we explore the current state of European corporate profitability and its potential direction.
- Despite a post-pandemic rebound in profitability, European corporate margins have started tempering in recent months as input costs rise with inflationary influences throughout the supply chain.
- Overall industrial production levels across sectors are trending downward.
- The lagged impact of rate rises and persistent cost inflation will place further pressure on many companies, including elevated energy costs in Europe heading into the winter period.
- Geopolitical events including tensions in the Middle East may exacerbate ongoing challenges.
- Many corporates are entering these challenging times with earnings and profitability at elevated levels, suggesting a softer landing in this turn of the credit cycle.
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KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.