Corporates Face USD5 Trillion 2020 Revenue Loss from Crisis

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The most stringent period of lockdown is over for many jurisdictions, signalling the start of a challenging period of re-opening, Fitch Ratings says. Fitch has published a sector-by-sector analysis of its assumptions for the road to recovery, for more than 80 corporate sectors and sub-sectors globally.

Fitch projected revenue-recovery curves for corporate sectors, using our baseline scenario, confirm a slow and halting recovery process for many sectors. Fitch’s recovery narratives suggest revenue destruction of more than USD5 trillion in 2020, compared to the USD26 trillion of revenue reported by Fitch’s corporate portfolio in 2019, extending to more than USD8.5 trillion of revenue destruction by end-2021. This estimate only covers our corporate rated portfolio, which in turn represents USD14 trillion of the estimated USD74 trillion corporate debt globally.

The oil and gas sector accounts for the most revenue destruction in dollar terms, representing 40% of the aggregate revenue fall. While the oil price has recovered from historic lows, pricing is still well inside our price-deck estimates and we expect economic sentiment to remain subdued after the initial post-lockdown euphoria dissipates.

Fitch’s projected decline in car sales of about 20% globally in 2020 (followed by a recovery of around 15% in 2021) makes the automotive segment - a critical element of the global manufacturing base - the second-largest revenue victim after oil and gas, albeit by a large distance. Further downside revision is possible if demand for big-ticket items weakens further.

The most severe relative declines for any sector occur in the leisure and transport sectors, for which we project revenue losses of 40%-60% in 2020. Although the underlying segments account for a relatively minor share (just 3%) of the aggregated global corporate revenue in our portfolio, they have a disproportionate contribution to employment in the wider economy.

The report also identifies a range of sectors and sub-sectors that we expect to prove resilient during the post-lockdown period, including telecoms and individual segments within technology, healthcare and even retail.

The range of region-specific variations Fitch analyse in the report do not meaningfully change the shape of the global recovery curve, with all regions generally adhering to a global pattern of a slow recovery from a traumatic 1H20.

DIEP NGUYEN