European businesses will progressively increase their debt again
The gradual recovery of the European economy is solidifying. Several indicators are showing particularly encouraging signs. Job creations increased in January at their fastest rate in almost a decade. The latest PMI figures also give a positive image of the Eurozone economy. Against this backdrop, we are anticipating that European businesses will progressively increase their debt again. European businesses have less debt overall than their American
counterparts. This difference can be attributed to the low growth in their profits since the crisis, which has driven them to preserve their cash flows. A portion of the debt raised has even served to increase issuers’ cash reserves. Now, we must ask questions about the impacts of the ECB’s Corporate Sector Purchase Programme (CSPP) on European businesses. Through this programme, Investment Grade issuers are enjoying exceptional
Our assumption is becoming increasingly well founded:
Another interesting factor that corroborates our scenario is the increase in European M&A activity since the beginning of the year, to a level close to the one observed in 2006.
We do not anticipate a widespread deterioration of European companies’ fundamentals. Only well-rated companies with strong cash flow visibility should increase their debt leverage.