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'Global economic growth in next 2 years to remain muted'
Aug '15
Global economic growth will be muted over the next two years, Moody's Investors Service has said in a quarterly report.

According to the report titled “Global Macro Outlook 2015-16: Risks to muted global growth from Chinese asset price deflation, US rate increase, and Greece's possible euro exit", the rating agency maintains its baseline forecast for G20 GDP growth at 2.7 per cent this year, rising to around 3 per cent in 2016, compared to 2.9 per cent in 2014. These 2015-16 growth forecasts are still below the G20's average growth rate before the financial crisis, and Moody's does not expect growth in the G20 to return to those pre-crisis averages within the next five years.

"The recovery in the US 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," said the report's author Marie Diron, senior vice president, Credit Policy. "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."

The main downside risks to Moody's Global Macro Outlook over the next two years relate to a possible further marked correction in Chinese equity and property prices, a disorderly response to the US Federal Reserve's anticipated policy tightening and a Greek exit from the euro area. All these risks would have a marked negative effect on the global economy compared with our current forecasts.

In China, Moody's maintains its baseline GDP growth forecast of 6.8 per cent this year and 6.5 per cent in 2016, before falling towards 6 per cent 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, the report said.

Moody's forecast is that US growth will be at 2.4 per cent in 2015, before rising to 2.8 per cent in 2016. Robust job creation, high corporate profits, favourable financing conditions and pent-up demand all point to higher GDP growth.

Moody's euro area forecast is for growth of 1.5 per cent 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.

Japan is one of the few countries that has seen its growth forecast revised up by Moody's this quarter. However, at the global level, this is offset by sizeable downward revisions for countries such as Brazil, Indonesia, Korea and Mexico in 2015-16.

The gradual global economic recovery has an impact on oil markets. The increase in world oil supply continues to outpace demand and Moody's has revised down its oil price assumptions. Moody's now expects the Brent price to average $57 a barrel in 2016, only a little higher than the 2015 average of $55. (SH)

Fibre2Fashion News Desk – India

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