The recovery in the world’s advanced economies now appears to be firmly entrenched, says Moody’s Investors Service, although this means emerging markets will likely face an adjustment period.
In a new report, the rating agency says that the global economic recovery is gaining strength, led by the world’s developed economies.
“With a stronger growth trajectory now evident in the U.S. and the UK, and a gradual recovery still likely in the euro area, advanced economies now appear to have reached a genuine turning point,” it says. “After the sluggish recoveries seen following the global financial crisis, several countries are set for robust growth over the coming years.”
Moody’s expects to see a gradual acceleration in economic activity in the G20 advanced economies over the next couple of years, It forecasts real GDP growth of around 2.3% this year, followed by 2.5% growth in 2015.
And, it says that the risks to this outlook have also diminished. Indeed, Moody’s says that the risks remain relatively low compared to recent years, “with large global risks such as the euro area debt crisis and U.S. fiscal deadlock having significantly receded.” in fact, it says that it seems “unlikely” that any single country-specific risk could derail the global economy.
The downside to this growing momentum in the advanced economies is that it means an adjustment in capital flows that will continue to pose challenges in the short term for several emerging economies, Moody’s suggests. “With several advanced economies now likely to see a more robust pace of recovery, the outlook for global growth has continued to brighten,” says Colin Ellis, associate managing director at Moody’s. “However, in the near term stronger growth in advanced economies is likely to be associated with further painful adjustments in some emerging markets, as investors rebalance their portfolios.”
Overall, Moody’s expects GDP growth in the major emerging markets of around 5% this year, before rising towards 5.5% during 2015.