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5 years ago
TEXT-S&P: hard landing in China could hit capital goods cos
May 30, 2012 / 2:57 PM / 5 years ago

TEXT-S&P: hard landing in China could hit capital goods cos

May 30 - Capital goods sectors in the U.S., Europe, and Asia are among the
industries most vulnerable to a hard landing for China's economy this year,
Standard & Poor's Ratings Services said today in an article titled "The Credit
Overhang: A Hard Landing In China Could Materially Pressure Capital Goods,"
published on RatingDirect.	
	
Standard & Poor's has used three possible economic growth scenarios for China 	
in 2012. We believe our base-case "soft landing" and our medium case--economic 	
growth slowing to 8% and 7%, respectively--would generally have little to no 	
rating impact on capital goods companies in the U.S., Europe, and Asia. But 	
our "hard landing" scenario of 5% growth could lead to some downgrades, 	
especially among speculative-grade companies.	
	
"Factors that underpin our hard landing scenario include government policies 	
aimed at cooling the housing market and curbing inflation, which could slow 	
the economy faster than we expect," said Standard & Poor's credit analyst 	
Gregoire Buet. 	
	
The recession in many European economies and slow growth in the U.S. could 	
also exacerbate weakening domestic growth. Another risk could be a delay in 	
China's goal of shifting the economy from a dependency on investments and 	
exports to a more balanced growth model that emphasizes domestic consumer 	
consumption, if the shift takes effect more slowly than the government 	
anticipates. 	
	
"If China's economic expansion were to slow significantly to 5%, as in our 	
hard landing scenario, we believe sales growth for foreign companies in the 	
capital goods sector could be flat to in the low single digits," Mr. Buet 	
said. 	
	
"The hard landing scenario could likely affect ratings of some 	
speculative-grade issuers in the U.S., Europe, and Asia (outside China)," he 	
added.	
	
A significant economic slowdown in China, to a hard landing of 5% growth this 	
year, could lead to some one-notch downgrades of speculative-grade companies. 	
Standard & Poor's could take negative rating actions on both investment- and 	
speculative-grade issuers if a hard landing stretches from 2012 into 2013 or 	
causes economic growth to slow materially in markets outside of China.	
	
	
The report is available to subscribers of RatingsDirect on the Global Credit 	
Portal at www.globalcreditportal.com. If you are not a RatingsDirect 	
subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 	
or sending an e-mail to research_request@standardandpoors.com. Ratings 	
information can also be found on Standard & Poor's public Web site by using 	
the Ratings search box located in the left column at www.standardandpoors.com.

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