Moody's rating agency warns that the high share of SMEs in the Portuguese, Italian and Greek economy increases the risks for the three countries.
The Covid-19 pandemic is affecting world economies differently and the high share of small and medium-sized enterprises (SMEs) in Portugal puts the country at the forefront of the risk of destroying the business sector, along with Greece and Italy. The conclusion is from Moody’s agency, which warns of the virus’ impact on sovereign ratings in 2021.
“Economies like Greece, Portugal (Baa3 positive) or Italy, in which small-sized enterprises account for a large share of GDP and employment, will suffer greater economic destruction given small enterprises’ lower buffers, fewer funding alternatives and shorter horizons,” the US agency warned in a report released on Tuesday.
Moody’s explains that there are economies that will recover better, pointing to economies with greater diversification and flexibility. It exemplifies that the high levels of digitization and automation in countries like Korea or Denmark could benefit. On the opposite direction, countries highly dependent on tourism or oil will face greater challenges. Also, economies with large services sectors like the UK or France will fare worse. In any case, the general outlook is negative.
“Our outlook for sovereign creditworthiness in 2021 is negative, reflecting our expectations for the fundamental conditions that will drive sovereign credit over the next 12-18 months,” Moody’s says. “The widespread fallout from the pandemic and the measures adopted by sovereigns to contain it have created an economic, fiscal and social shock that will last into 2021 and beyond.”
This impact is already being felt. As of this Monday, 65 (or 60%) of the total 108 sovereign rating actions rated this year by Moody’s were negative. The proportion is far from the figures recorded in both 2019 (20%) and 2018 (30%).