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 in a report published Wednesday.
The credit rating agency forecasts a weak recovery, as lowcommodity prices and weak export demand “continue to act as a dragon the global economy this year”, the report says.
Moody’s is currently predicting a small pullback in growth for G20 advanced economies from 1.9% in 2015 to 1.7% in 2016. It also sees G20 emerging markets growth slipping to 4.2% in 2016 from 4.4% in 2015.
“The global recovery has weakened further and the outlook acrosscountries remains uneven and largely weaker than over the past twodecades,” says Elena Duggar, associate managing director at Moody’s, in a statement.”Global trade remains subdued, while spillovers from emerging marketsshocks to financial markets globally have increased substantially.”
Moody’s has lowered its growth projection for the U.S. this year to 2.0% from 2.3%, the report says due to “weakness in the first quarter”. It expects growth to pick up a bit next year, rising to 2.3% in 2017.Moody’s also expects that the U.S. Federal Reserve will raise its benchmarkinterest rate twice this year, at most.
“Consumption should pick up through the remainder of the year as thelabor market continues to improve and wages rise,” adds Madhavi Bokil, vice president and senior analyst at Moody’s. “Nonetheless, the drag onthe U.S. economy exerted by the combination of subdued global demand and weak business investment is likely to remain.”
Moody’s has also lowered its 2016 growth forecasts for Argentina, Brazil,Mexico and Turkey, noting that, “the effects of the weaker external demand and lower commodity prices have compounded domestic structural and political challenges.”
For China, Moody’s says that the economy will slow gradually from 6.9% in 2015 to around 6.3% in 2016. “The fears of a Chinese hard landing have eased in recent months with first quarter data suggesting that the economy is stabilizing,” says Bokil. “However, the government’s focus on achieving specific growth targets, could come at a cost to the quality of growth.”
A bigger-than-expected slowdown in China’s economy remains one of the biggest downside risks facing the global economy, Moody’s says.
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