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Moody's: Auto, Gaming and Lodging Sectors Most at Risk from Fiscal Cliff

Global Credit Research - 17 Dec 2012

New York, December 17, 2012 -- If the White House and Congress do not come to an agreement in the next two weeks, the tax increases and expenditure cuts mandated by the "fiscal cliff" agreement will undercut US economic growth in 2013, Moody's Investors Service says in a new report.

In the report, Moody's makes no predictions about whether the White House and Congress will end the political impasse before the deadline. If left intact, however, the mandated tax increases and spending cuts would reverse the modest growth trend the ratings agency has predicted for 2013. And an uncertain business environment risks tipping the nation back into recession, Moody's says.

While the effect of higher taxes and government spending cuts is difficult to forecast, certain US industries would bear the brunt of the risk. The Automobile, Gaming, and Lodging and Cruise sectors could suffer if consumers pull back their spending, while the already struggling newspaper industry would come under increased pressure, Moody's says in "Fiscal Cliff Poses Biggest Risks to Auto, Newspaper, Gaming and Lodging Sectors." Paper producers would also come under far more stress.

A contraction in the US economy would also lead oil prices to drop below Moody's current assumptions for 2013, though oil prices would still probably remain strong by historical standards. The effect on upstream segments of the oil and gas industry would depend on how quickly companies adjust their cost structures, while the Refining and Marketing sector could face additional margin pressure amid an ebb in demand from the US and China.

Some sectors would avoid the worst effects of the fiscal cliff, despite ostensible risks, Moody's says. Airline companies can cut capacity if bookings moderate, while the Building Materials sector has at least a low level of guaranteed government spending in place through the end of 2014.

And the rating agency assumes that the Aerospace and Defense, For-Profit Hospitals and Medical Products and Device sectors, which all at least partly depend on government spending, will see sharp cuts in that spending regardless of the outcome of negotiations in Washington.

Moody's research subscribers can access this report at http://www.moodys.com/research/US-Non-Financial-Corporate-Industries-Fiscal-Cliff-Poses-Biggest-Risks--PBC_148265.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

John Forrey
MD - Global Corporate Research
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Mark Gray
MD-US and Amer Corporate Fin
Corporate Finance Group
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Moody's: Auto, Gaming and Lodging Sectors Most at Risk from Fiscal Cliff
No Related Data.

 

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