Within the nonfinancial category, sectors such as utilities, consumer products, chemicals, packaging and environmental services, oil and gas exploration and production, and high technology appear among the most vulnerable to potential downgrades. On the other hand, the telecommunications and automotive sectors appear the best poised for potential upgrades.
The negative bias also declined visibly in the European financial sector at the end of the second quarter. Only 16% of banks were listed with a negative bias on June 30, compared with 28% a year ago. The corresponding figures for nonbank financials were 24% and 51%, respectively, with the negative bias mostly attributable to the property/casualty, reinsurance, and life insurance subsectors.
"Credit quality should see some stop-start improvement this year amid expectations of weakly accelerating growth, although the stuttering advance suggests no sustainable gain will materialize until final demand for goods and services gains momentum," explained Diane Vazza, head of Standard & Poor's Global Fixed Income Research. The significant payoff from balance sheet repair is largely realized, and further enhancements in credit quality will hinge on growth, with concomitant improvements in profitability, retained earnings, and cash-flow generation.
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