For the rating agency, factors such as climate change, inflation and geopolitical risks could impact the outlook for this type of company in Latin America in 2025.
Moody's said on Wednesday that it sees a stable credit outlook in 2025 for non-financial companies in Latin America and the Caribbean. For the firm, this reflects the diverse credit implications of the region arising from four key credit themes that will influence corporate credit quality worldwide: the path to macroeconomic normality; geopolitical tensions; global transitions; and digitalization and disruption.
Regarding credit quality, Moody's noted that this differs across Latin American countries, with spillover effects on non-financial companies. A more favorable credit environment is gradually improving liquidity and decreasing default risk. Lower inflation is reducing costs. "Interest rates will decline but remain elevated for Latin American borrowers in 2025, making debt coverage more difficult, especially for companies with lower credit quality. However, most Latin American companies tend to finance themselves through long-standing relationships with local banks," it noted.
Meanwhile, the firm noted that short-term geopolitical risks remain elevated globally, with various trade-related side effects for Latin American companies. Competition between economic blocs and military conflicts will affect the way companies operate and supply goods, and are likely to influence business investment, as trade protectionism hurts growth. In that sense, it noted that the new Donald Trump administration is likely to address China's growing influence in the region and focus on Mexico as the USMCA is reviewed. Exporting companies, especially manufacturers, will be the most vulnerable. " Commodity prices remain favorable, but uncertainty around policies and trade restrictions will generate volatility," it said.
Climate change, decarbonisation and demographic changes are other points to consider as they are driving policies that will determine the financial strategies of non-financial companies from 2025 onwards. "The continuation of the weak La Niña phenomenon until early 2025 reduces the probability of heavy rainfall in some parts of Latin America and decreases the risk of rainfall in others. In the long term, the design and implementation of Latin American policies to reduce greenhouse gas (GHG) emissions will take time, but Chile's abundant copper and lithium resources will contribute greatly to global energy transition efforts," he explained.
Moody's also believes that the credit quality of these types of companies will continue to take into account an evolving political and regulatory context that affects business activity in established sectors. In this regard, "the weakening of institutions represents a much greater risk in Mexico, where a wide-ranging judicial and regulatory reform threatens to chill business investment in the future."
Finally, factors that could change the outlook include higher inflation and a weaker-than-expected credit environment, including further interest rate cuts and limited access to long-term financing. "A positive outlook would reflect lower inflation, interest rate easing, stronger economic growth and rising incomes," he concluded.
