The downside risks facing the global economic recovery have diminished since the end of last year, but a slow pace of economic growth is still likely in many economies, says Moody’s Investors Service in a new report.
The rating agency says that, with the United States having avoided a full scale disruption due to the so-called ‘fiscal cliff’, the easing of financing stresses in the euro area, and increasing signs that key emerging markets will avoid a hard landing, it believes there are now fewer potential stumbling blocks on the path to global recovery.
However, it cautions that the balance of risks to the macro outlook still remains skewed to the downside, due to the possibility of a deeper than expected recession in the euro area, accompanied by a deeper credit contraction; weaker-than-expected growth in major emerging markets; and, an escalation of geopolitical tensions, resulting in adverse economic developments.
“While our central forecasts are little changed, the downside risks have definitely abated over the past three months,” says Colin Ellis, Moody’s senior vice president for macro financial analysis. “However, we still expect a subdued global recovery with sub-trend growth in most advanced economies over the near term, alongside a relatively soft pace of expansion in emerging markets as well.”
Moody’s expects real growth for the G20 of around 2.9% in 2013, followed by 3.3% in 2014, with positive growth in the U.S. this year, whereas the euro area as a whole is expected to stagnate during 2013.
“Despite the recent improvement in financial conditions, we still need to see that feed through to the real economy in many countries. Fiscal consolidation will continue to weigh on aggregate demand and confidence, and private sector appetite for risk is still relatively weak, hampering hiring and investment. In addition, we still need to see further rebalancing in many emerging market economies, given the weak outlook for external demand,” Ellis added.