Rating firms say US tariffs alone will not trigger EU sovereign downgrades
LONDON : The sharp increase in US trade tariffs on the EU will not trigger immediate sovereign rating cuts, but could compound existing pressures, Fitch and other agencies said today, while Moody's warned of the effect on exporting firms.
One of Fitch's top sovereign analysts, Ed Parker, said the US' baseline tariff of 15% on imports from the EU was in line with assumptions the rating agency has had since March and therefore did not materially shift its economic forecasts.
'Nevertheless, the 15% rate is a huge increase relative to the 1.2% rate of last year,' he said.
'We don't expect the increase in the tariff rate to directly drive EU rating changes on its own, but it could compound existing credit pressures,' Parker told Reuters.
Smaller European-based agency Scope Ratings and Morningstar DBRS echoed the view, with Scope's head of sovereign ratings, Alvise Lennkh-Yunus, saying the tariffs arrived 'against a backdrop of accumulating economic shocks'.
At a sector level, Moody's warned that 'the credit effects will be significant' for companies that export a lot to the US, depend on complex global supply chains and have limited pricing power in their markets.
That includes carmakers like Stellantis and Volkswagen, whose ratings Moody's recently downgraded.
Large diversified European manufacturing companies like Siemens and ABB generate about 25% of their revenue in the US.
However, they tend to follow local-for-local strategies, sourcing at least 80% of their procurement within the US and should be able to pass at least some of the tariff increases on to customers.
Uncertainty still remains about key goods such as semiconductors and pharmaceuticals.
The pharmaceutical sector amounts to 25% of all EU exports to the US, analysts estimate.
The exemption of aircraft components meanwhile eases expected tariff-related pressures for Airbus and MTU Aero Engines, 'which reinforces our already positive outlook for the global aerospace and defence sector,' Moody's said.
It also said the 15% rate had been broadly in line with expectations it laid out when it cut its euro zone economic growth forecast for the year to below 1% in May.
It did not give an EU-wide sovereign view, although it said Ireland, which it rates at Aa3 and has a 'positive' outlook on, was most exposed with total value-added exports to the US accounting for around 8% of its GDP back in 2020.
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