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Ratings agency Moody's sees good opportunities for exporters and resources companies this year from a weaker Australian dollar, along with "modest earnings growth" for corporates and a low appetite for increased debt.
Moody's Investors Service forecasts the earnings growth will be supported by GDP growth of around 2.8% and the continuation of accommodative monetary policy settings.
The conclusions are in the group's recently released report "Non-financial corporates - Australia: 2019 Outlook".
"The growth in the Chinese economy should also remain supportive for overall Australian corporate sector activity, while the weaker Australian dollar, which is down around 33% from its 2012 peak, will continue to benefit exporters and the resources sector," says Moody's vice president Maurice O'Connell.
"In addition, average financial leverage for Australian corporates will remain steady in 2019 and 2020, based on the forecast small increases in EBITDA and overall continued conservative levels of capital spending," he says.
"Appetite for increased debt will also remain low, while the key risk is that limited organic growth opportunities and the low cost of debt could encourage M&As or shareholder-friendly initiatives, leading to higher financial leverage," says O'Connell.
Moody's expects the corporate sector to see moderate levels of debt - as a percentage of gross total debt - maturing in the next 18 months, with high levels of cash-on-hand set to continue supporting liquidity for many issuers.
The good news is the proportion of negative ratings outlooks has declined as the recovery in resources-related earnings is reflected in improving ratings. A total of 90 per cent of rated corporates now have stable ratings outlooks, six per cent are positive and four per cent are negative.
In terms of sectors, competition is set to remain high in retail and consume markets due to ongoing industry changes and new entrants in the supermarket sector, but credit metrics will remain broadly stable as EBITDA increases due to the growth in store networks and a focus on costs.
Steady vacancy rates and contracted rental income are expected to support earnings growth of close to three per cent for Australian real estate investment trusts (A-REITs).
In construction, residential activity is forecast to decline but government infrastructure spending will remain high and resources-related capital spending will rise modestly off a low base.
Moody's has projected a "competitive but rational" domestic airline market, with capacity management allowing for ticket price rises to largely offset higher fuel costs.
In the mining sector, investment spending and shareholder returns are forecast to increase, likely funded from internal cash flow.
Moody's emphasises its ratings and publications are not intended for use by retail investors, claiming "such use would be reckless and inappropriate".
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