Moody's: Australian corporate outlook for 2017 stable

Moody's Investors Service says that the outlook for corporate sectors in Australia is stable during 2017 and most corporates also show solid balance sheets and liquidity.

"At the same time, financial leverage is moderate as are refinancing needs, but pressures remain in mining-related sectors, although such companies are also improving from previously weak levels," says Maurice O'Connell, a Moody's Vice President and Senior Credit Officer.

"Our core outlook is for a modest increase in earnings growth, driven by an improvement in the domestic economy, with 2.0-3.0% GDP growth in 2017 and accommodative monetary policy settings," adds O'Connell.

Moody's conclusions were contained in a just-released report, "Non-Financial Corporates -- Australia, 2017 Outlook: Stable for All Sectors".

With the metals and mining sector, prices are improving for some commodities and are unlikely to return to the low levels seen in early 2016. Furthermore, continued cost cuts and lower capex/dividends will support improvements to the sector's credit metrics.

In addition, debt pay-downs and asset sales are likely to continue as companies adjust their balance sheets to a lower earnings environment, while strong liquidity continues to be a focus.

In the retail sector, clear winners and losers will emerge in the food retail business, while an increased focus on price is raising competition and price deflation. And the quality of retail execution will be a key driver of moves in relative market share.

In the case of A-REITs, operating income will increase moderately by around 2.5%, with broadly steady vacancy rates and fixed rent increases. Office rents will benefit from good demand in Sydney and Melbourne, while retail rents will benefit from high occupancy rates and solid discretionary spending.

The building and construction sector will see earnings broadly flat to marginally higher as the Industry transitions from resources-related spending and residential construction activity will be close to peak levels. At the same time, road and rail infrastructure spending in 2017 will help mitigate the effects of lower levels of investment in the resources sector.

Finally, in the airlines sector, earnings and credit metrics should be broadly stable and cost savings, low fuel prices and debt reduction will continue. The environment will remain competitive but rational along with rational management of capacity.

In addition, the arrival of offshore airlines into the Australian international aviation market will increase competition.