The global economy should continue to see stronger growth, as Europe and several emerging markets pick up the pace, Moody’s Investors Service says in its global economic outlook report published on Wednesday.
According to the report, the G20 economies will collectively generate annual growth of slightly more than 3% in 2017 and 2018, up from 2.6% in 2016. This faster pace of expansion is expected to come even though the report includes a downward revision to Moody’s growth forecast for the United States.
Moody’s is trimming its U.S. growth expectations to 2.2% in 2017 and 2.3% in 2018, down from 2.4% and 2.5%, respectively. The revisions reflect weaker performance in the first half of this year, and diminished expectations for fiscal stimulus.
“We don’t expect a major infrastructure bill to pass in 2017 or 2018,” says Madhavi Bokil, a vice president at Moody’s and author of the report, in a statement. “Even if a bill were to pass, infrastructure expenditure that is funded through tax credits will have a minimal immediate impact on growth.” Additionally, U.S. monetary policy is expected to continue to tighten this year and in 2018.
Moody’s is raising its growth forecasts for several of the world’s other major economies, including China, Germany, Japan, France, Italy, Korea, Mexico and Turkey, citing surprisingly strong economic data.
“With considerable slack remaining in some euro area economies and some emerging market countries, the current pace of growth around 2% in advanced economies and more than 5% in emerging markets is not only sustainable in the near term, there is potential for upside,” says Elena Duggar, an associate managing director at Moody’s.
The major risks to Moody’s outlook include geopolitical event risks such as potential conflict in the Korean Peninsula, the South China Sea and the Middle East. “A significant escalation of any of the situations in Korea, the South China Sea and other areas could have significant negative credit implications for the global economy,” adds Duggar.
Other risks include heightened protectionism by the U.S., and any financial market volatility stemming from sudden changes in market expectations regarding monetary policy.
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