German Sectors on Track for Solid Growth, Stable Credit Quality in 2017

German nonfinancial companies are set to enjoy a year of stable credit quality, with ongoing economic growth and high levels of geographic diversification backing up Moody’s Investors Service’s predictions for 2017.

"German companies' stable credit quality in 2017 is supported by steady GDP growth of around 1.5% on the back of continued strong household consumption and net exports, as well as their geographic diversity, with only one-quarter of revenues earned from domestic customers," said Scott Phillips, a Moody's vice president/senior analyst.

Significant refinance requirements and regular issuance from large, repeat issuers point to new highs in bond issuance volumes this year, Phillips said.

The German automotive sector is likely to see decreased sales growth and price pressure taking away from profitability in 2017, though Moody’s analysts said strong credit metrics for firms like VW and BMW will keep their credit ratings in good shape.

The nation’s chemical sector should see profitability grow in 2017 by about 2% to 3% in earnings before interest, tax, depreciation and amortization (EBITDA), while mergers and acquisition event risk is increasing for some of the largest issuers, Moody’s said.

Also, a supportive regulatory and political environment should produce stable credit conditions for German-domiciled regulated energy networks, analysts said.

– Nicholas Stern, editorial associate

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