Moody’s Investors Service says that its view on the global economic recovery has dimmed a bit amid weakness in emerging markets.
In a new report, the rating agency indicates that rising bond yields in the advanced economies, and weaker currencies and capital outflows among emerging markets, are weighing on the global economy. As a result, it sees a weaker recovery.
Moody’s view on the advanced economies is basically unchanged. It continues to expect only a modest recovery there, with real GDP growth of around 1.3% this year, rising to 2.0% in 2014.
However, its forecast for the emerging economies is somewhat weaker. Moody’s says it now expects GDP growth in the major emerging markets of around 5.25% in 2013, rising to 5.5% in 2014.
And, it says that the balance of risks to the global economy outlook still remains skewed to the downside. These risks include the prospect of a deeper-than-expected recession in Europe; slower-than-expected growth in major emerging markets; and, a disorderly exit from monetary stimulus measures by central banks.
“The recent focus on the future direction of U.S. monetary policy, and associated spillovers to other economies, has demonstrated that monetary conditions could easily tighten long before official policy rates increase,” says Colin Ellis, Moody’s senior vice president for macro financial analysis.
“Central bankers therefore face a challenge in striking the right balance between nurturing recovery and normalizing policy, with concurrent rises in long-term yields likely to impede growth,” he adds.