PARIS, March 26 (Reuters) - A recovery in domestic demand coupled with continued emerging market growth should boost European automotive parts suppliers' prospects, although there is unlikely to be a return to positive cash flow this year, credit rating agency Moody's said in a report on Wednesday.
Outlining its "stable" outlook for the industry over the next 12-18 months and citing a rebound in light vehicle demand and an improved geographic spread, the agency nevertheless said the free cash flow issue "remains a concern".
Moody's said it would consider changing the outlook to "positive" if the European auto market returns to a stable growth path, with organic growth - which usually excludes external factors such as acquisitions - consistently exceeding 5 percent, translating into solid free cash flow generation for the automotive suppliers.
It would lower the outlook to "negative" if the stabilisation of the European market proves unsustainable or if the Asian growth engine weakens.
Moody's noted that increased light vehicle demand is important for supplier growth and profitability.
It said companies with a broad international footprint should be able to achieve organic growth well above 5 percent in 2014. It said these include Autoliv ASP, Inc, Compagnie Generale des Etablissements Michelin and SKF AB. (Reporting by Andrew Callus; Editing by Mark Potter)