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Protectionism making performance of EMEA transport infrastructure 'less predictable'

Publication Date: 27 Nov 2018 - By Gaurav Sharma (Associate Editor ReachX) By Gaurav S.

Macro Equity Fundamental Multi Asset UK EU Middle East Transport


Global trade tensions and Brexit uncertainty risks make the performance of the EMEA (Europe Middle East and Asia) transport infrastructure sector less predictable, according to a new industry report.

In a note to its clients on Tuesday (27 November), Fitch Ratings said it expects “slower” volume growth across airports, ports and toll roads.

Most Fitch-rated EMEA transport assets have sufficient rating headroom to withstand a moderate cyclical downturn, the agency added. "We expect higher inflation to support revenue growth for inflation-linked issuers. The end of European Central Bank’s quantitative easing (QE) signals rising interest rates, affecting assets exposed to floating rates or refinancing risks. We anticipate broadly stable portfolio performance for 2019."

However, the strong rate of passenger growth at Fitch-rated airports in EMEA in recent years is unlikely to continue in the medium term.

The agency expects annual traffic growth in its rated peer group to slow to about 2.5% in 2019 from about 3.5% in 2018. “But strong traffic growth in the past few years has created net debt to EBITDA headroom against a downgrade for most of our portfolio. Uncertainties about Brexit remain considerable, particularly for UK airports, although some European airports with significant leisure traffic from the UK could also be affected.

“A disruption of the Open Skies Agreement could have a greater impact, but we believe that flights would not be grounded for an extended period even under this unlikely scenario.”

Protectionist US trade policies are also affecting global growth and will hit ports in Europe that are fully integrated into the global supply chain. The full impact of trade tensions on global trade may have been distorted so far by US importers building inventories ahead of the imposition of tariffs.

“We expect cargo volumes to grow more slowly and follow the softer growth trend of eurozone GDP in 2019. UK ports remain exposed to a disruptive Brexit scenario. New customs processes and non-tariff barriers could result in near-term disruptions to trade flows,” Fitch said.

Softer consumer spending growth is also likely to weigh on EMEA toll road traffic in 2019.

The agency said performance will differ by region. Spanish and Portuguese assets should continue to benefit from the momentum of their countries' economies. Robust disposable income growth should sustain the performance of French networks.

“Traffic on Italian networks was flat in 9M18, which suggests that softer economic activity may have caused these assets to have reached a peak in traffic. Furthermore, the risk of political interference is rising in Italy following the Genoa bridge collapse and this could also put contractually established tariff increases at risk,” the agency concluded.


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