Moody’s Investors Service is maintaining its outlook for the global economy to continue plodding along over the next couple of years, the New York-based credit rating agency announced on Tuesday.
In its latest quarterly forecast, Moody’s says it expects global growth to be muted over the next two years, with G20 gross domestic product (GDP) growth of 2.7% this year, rising to around 3% in 2016.
These forecasts are below the G20’s average growth rate before the financial crisis, Moody’s notes, and adds it does not expect growth in the G20 to return to those pre-crisis levels within the next five years.
“The recovery in the U.S. and, to a lesser extent, the euro area and Japan, will be offset by the ongoing slowdown in China, low or negative growth in Latin America and only a gradual Russian recovery from its recession this year,” says Marie Diron, senior vice president, credit policy, at Moody’s, in a statement. “A sharp or long-lasting correction in asset prices in China is one of the risk factors which could result in lower G20 growth than in our baseline forecasts.”
Indeed, the main downside risks to its forecast include a possible further correction in Chinese equity and property prices, a disorderly response to the expected increase in interest rates by the U.S. Federal Reserve Board, and a Greek exit from the euro area, Moody’s notes. “All these risks would have a marked negative effect on the global economy compared with our current forecasts,” it says.
Moody’s current forecast is for U.S. growth of 2.4% in 2015, rising to 2.8% in 2016. “Robust job creation, high corporate profits, favourable financing conditions and pent-up demand all point to higher GDP growth,” Moody’s explains.
In the euro area, the credit rating agency sees more modest growth of 1.5% in both 2015 and 2016. “The weaker euro and lower oil prices have given a boost to the region’s economy. However, there is no evidence from either increased investment, labour productivity or faster than usual employment growth that structural reforms have markedly lifted the region’s growth potential yet,” Moody’s says.
For China, Moody’s is maintaining its baseline GDP growth forecast of 6.8% this year and 6.5% in 2016, before falling towards 6% by the end of the decade. “The recent stock market correction is unlikely to have a significant impact on China’s GDP growth. The depreciation of the yuan so far will also not have any marked economic impact,” Moody’s says.
The gradual pace of global economic recovery has an impact on oil markets, Moody’s notes. Tthe increase in world oil supply continues to outpace demand, which caused it to revise its oil price assumptions downward recently, it says. Moody’s now expects the Brent price to average US$57 a barrel in 2016, only a little higher than the 2015 average of US$55.