Moody's: Global Growth to Remain muted As Emerging Markets Weigh on Us, advanced Economies
Weak growth in emerging markets, driven by low commodity prices and weak export demand, will continue to act as a drag on the global economy this year, says Moody's Investors Service. Moody's has lowered its 2016 growth forecasts for Argentina, Brazil, Mexico and Turkey, as the effects of the weaker external demand and lower commodity prices have compounded domestic structural and political challenges. Moody's currently forecasts G20 emerging markets growth at 4.2% for 2016 compared to 4.4% in 2015. For G20 advanced markets growth is predicted to slide to 1.7% for 2016 from 1.9% in 2015.
"The global recovery has weakened further and the outlook across countries remains uneven and largely weaker than over the past two decades," said Elena Duggar, an Associate Managing Director at Moody's. "Global trade remains subdued, while spillovers from emerging markets shocks to financial markets globally have increased substantially."
Moody's has lowered its growth projection for the US to 2.0% from 2.3% for 2016, to reflect weakness in the first quarter, followed by 2.3% growth in 2017. The strong recent pick-up in consumer confidence and spending, and the continued strength of the services industry underlines the resilience of the US economy.
"Consumption should pick up through the remainder of the year as the labor market continues to improve and wages rise," said Madhavi Bokil, a Vice President and Senior Analyst at Moody's "Nonetheless, the drag on the US economy exerted by the combination of subdued global demand and weak business investment is likely to remain."
Moody's expects that the Federal Reserve will raise its benchmark interest rate at most twice this year. Policy makers will raise rates gradually, giving investors ample forward guidance as they seek to minimize the negative impact that higher borrowing costs will have on growth and the potential disruption they could cause to global capital markets.
A more pronounced slowdown in China's economy than anticipated is currently one of the biggest risks to the global economy. Slower growth in China, the world's second-biggest economy, could have a significant knock-on effect on global growth by increasing risk aversion, ramping up financial market stress, and souring sentiment.
China's economy will slow gradually from 6.9% in 2015 to around 6.3% in 2016, guided by policies intended to bolster growth, according to the report "Global Macro Outlook 2016-17: Further Weakness in Emerging Markets Amid Persistent Downside Risks."
"The fears of a Chinese hard landing have eased in recent months with first quarter data suggesting that the economy is stabilizing," added Bokil. "However, the government's focus on achieving specific growth targets, could come at a cost to the quality of growth."
China's growth continues to be supported by increased borrowing, which ultimately will increase longer-term risks, particularly within the banking system.
News are provided by InstaForex