Moody’s global default outlook

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Moody’s cuts outlook on $6.6 trillion US corporate debt pile to ‘negative’

Moody’s Investors Service has cut its outlook on corporate debt to negative, saying that an economy about to tip into recession because of the coronavirus will result in rising default rates.

The ratings agency warned that sectors “most sensitive to consumer demand and sentiment” will be especially hard-hit due to social distancing measures that slashed economic activity. They include global passenger airlines, the lodging and cruise industries, and autos.

In addition, plummeting energy prices will leave the oil and gas sector exposed, while banks also will face a challenging environment amid falling interest rates that eat into profitability and a deteriorating economy that will undermine credit quality.

“The coronavirus will cause an unprecedented shock to the global economy,” Edmond DeForest, senior credit officer at Moody’s, said in a report. “We have revised our growth forecasts downward for 2020 as the rising economic costs of the coronavirus shock and the policy responses to combat the downturn are becoming clearer. Business activity will likely fall sharply across advanced economies in the first half of 2020.”

The warnings comes even after the Federal Reserve took the unusual step of saying it would be buying corporate debt as a way to keep liquidity flowing in a market that froze up after the government announced social distancing measures.

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