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18 Feb 2016
Singapore, February 18, 2016 -- Global growth will fail to pick up steam over the next two years as the
slowdown in China, lower commodity prices and tighter financing
conditions in some countries weigh on the economy, Moody's
Investors Service said in a quarterly report today.
The downside risks to Moody's forecasts for G20 GDP growth of 2.6%
in 2016 and 2.9% in 2017 have increased since the rating
agency's last Global Macro Outlook in November. Furthermore,
G20 policymakers in some countries have limited fiscal and monetary policy
space to boost growth or mitigate these risks.
"We expect global growth to rise only very modestly in 2016-17,"
said Marie Diron, a Moody's Senior Vice President and co-author
of the report. "The negative impact of commodity producers'
adjustment to persistently lower prices, a marked slowdown in China's
imports and tighter financing conditions for some emerging markets will
outweigh positive factors, such as accommodative monetary policy
in Europe, Japan and in the US." "Where government
budgets are hit by lower commodity prices and depreciating currencies
fuel inflation, room to mitigate the downside risks is limited.
In Europe and Japan, elevated government debt continues to constrain
fiscal policy while the efficiency of multiple rounds of quantitative
easing is already being tested." Diron adds.
The report, "Global Macro Outlook 2016-17: Global Growth
faces rising risks at times of policy constraint", is available
on www.moodys.com. Moody's subscribers can access
this report using the link at the end of this press release. The
research is an update to the markets and does not constitute a rating
In China, Moody's forecasts GDP growth of 6.3%
in 2016 and 6.1% in 2017, compared to 6.9%
in 2015 as the authorities use some of their available policy space to
support the economy and foster a very gradual economic slowdown.
"China's slowdown will be concentrated in heavy industry sectors
that are significant importers," Ms Diron added. "As
a result, the impact of the slowdown on the rest of the world -
when measured in terms of the value of exports to China and profits generated
there - will be sharper than implied by China's GDP growth
Moody's has revised down its GDP growth forecasts for Brazil,
Russia, Saudi Arabia and South Africa. Lower oil prices,
and additional fiscal tightening in order to contain government debt dynamics,
account for the revisions for Russia and Saudi Arabia. In Brazil,
the gains in price competitiveness and related strong export growth will
not spill over to the domestic economy as long as business confidence
remains at record-low levels. In South Africa, marked
capital outflows in recent months reflect a lack of confidence in the
government's ability to deliver growth-enhancing measures
in the short term. Room for support is constrained for both fiscal
and monetary policy. Moody's forecasts that GDP will shrink
again this year in Brazil and Russia, by 3% and 2.5%
respectively, growth will fall to close to zero in South Africa
and will be around 1.5%, the lowest in decades,
in Saudi Arabia.
In the United States, Moody's forecasts GDP growth of 2.3%
in 2016 and 2.5% in 2017, broadly unchanged from last
year. The recent correction in financial asset prices poses some
downside risks to the US forecast if tighter financing conditions weigh
more significantly on investment than we currently assume. Moody's
anticipates that the US Federal Reserve will continue to raise interest
rates gradually, with the Fed funds rate at around 1.75%
by the end of 2017.
Lower prices for oil and other commodities have provided a boost to economy
activity in the euro area. But these gains are tempered by persistently
high debt in some sectors and uncertainty over the success of multiple
rounds of quantitative easing. Moody's GDP growth forecast
for the region is unchanged at 1.5% in both 2016 and 2017.
In Japan, GDP growth is expected to be below 1% both this
year and in 2017, despite the boost from lower commodity prices
and the weaker yen. The Bank of Japan's 2% inflation
target will remain elusive, despite negative policy interest rates.
The main risks to Moody's forecasts include a marked depreciation
in China's renminbi. For China, the potential gains
in price competitiveness would be more than offset by renewed capital
outflows in anticipation of a further weakening of the currency.
A weaker renminbi would also reduce the profits of foreign companies that
sell to China, hamper the price competitiveness of other emerging
markets and intensify disinflationary pressures in Japan and the euro
Other potential risks include heightened geopolitical tensions,
particularly in the Middle East, that could lead to volatile financing
conditions and increased risk aversion. Moreover, with very
large differences in unemployment rates across European countries,
cross-border flow of workers helps improve the match between demand
and supply of labour and thereby the general functioning of labour markets
and the economy. This would be jeopardised by long-lasting
restrictions to the movement of people within the European Union.
Moody's Global Macro Outlook report underpins the company's
ratings and provides a consistent benchmark for analysts and investors.
Moody's subscribers can access this report at:
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Moody's: Increased risks to global growth cloud outlook in 2016-17
Moody's Investors Service Singapore Pte. Ltd.
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