LatAm airlines among the hardest hit if war in Ukraine sparks recession

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LatAm airlines among the hardest hit if war in Ukraine sparks recession

If the Russian invasion of Ukraine triggers a recessionary effect for the world economy and tighter access to capital markets, stress would be added to a handful of LatAm companies, and among them, the most affected would be commercial airlines, said the risk rating agency Moody’s in a recent report.

Only about 25% of Moody’s rated non-regulated non-financial Latin American companies would face moderate or high stress in a downside scenario and almost 10% would see some benefit”, state the American firm.

Furthermore, the document indicates that Latin American airlines face the greatest overall risk in a downside scenario due to the armed conflictwhile mining and metals companies would benefit.

Moody’s report did not detail names of airlines. In the region, the main airlines are Copa Airlines, Avianca, Aeromexico, GOL and LATAM, among others.

In any case, Moody’s base scenario is not bearish. Although it all depends on how long the war lasts.

What is a bearish scenario in this context?

Our downside scenario includes the cessation of energy trade between Russia and Europe, which will cause significant stress around the world, regardless of which side initiates it.”, indicates Moody’s.

Analysts clarify that a recession in Europe would likely trigger a significant slowdown or recessions around the world, bringing substantial financial volatility and liquidity squeeze.

Under such a scenario, global economic output would deteriorate, with European countries slipping into recession, yield spreads would widen considerably, and refinancing risk would become problematic.

The baseline scenario

However, Moody’s baseline scenario (relating to the Russia-Ukraine war) assumes that the crisis will persist for at least several months and that US, European and other country sanctions on Russia will persist for at least two years, as well as the higher prices of raw materials, high interest rates and inflation.

In that base scenario, Moody’s does not forecast a widespread global recession, although “the longer the crisis lasts and the more it grows”, the greater the risk of such a scenario.

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“Latin America has few direct economic and financial ties to Russia and Ukraine, but rising energy prices and supply shocks as a result of the escalating military conflict are already restricting access to food and key industrial products,” Moody’s says. .

Food and transportation prices are rising rapidly

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