Moody's revises G20 economic growth forecast downwards

02 Sep '15

3 min read

Moody's Investors Service has revised downward its forecast for GDP growth in the G20 economies to 2.8 per cent next year, from 3.1 per cent. In a report titled "Downward Revisions to 2016 Global Economic Outlook," Moody's says that the revision mainly reflects the impact of a more marked slowdown now forecast in China and more prolonged negative effects of low commodity prices on G20 producers than earlier expected.

Moody's has slightly revised downwards its GDP growth forecast for China in 2016 to 6.3 per cent, from 6.5 per cent previously. Recently published economic indicators show that China's slowdown in exports and investment has continued into Q3 2015. In addition, signs that employment growth is weakening point to a more marked and broadly-based deceleration in the Chinese economy than previously expected.

Ongoing policy support from the Chinese government is likely to only partly offset the underlying slowdown in the Chinese economy, according to the rating agency.

"Slower growth in China makes a significant rebound in commodity prices in the near term unlikely. A more prolonged period of low commodity prices will lead to muted export revenues and investment for commodity-exporting G20 economies." says Marie Diron, a senior vice president at Moody's.

Moody's now expects negative GDP growth in 2016 in Brazil and Russia, extending the 2015 recessions. The recent fall in commodity prices and further depreciation of the currencies exacerbate an already unfavourable domestic economic environment in both countries. At -1 per cent/0 per cent for Brazil and -1.5 per cent/-0.5 per cent for Russia Moody's 2016 forecast ranges are now 0.5 and 1 percentage point lower than in the previous forecast.

Korea and Japan will face dampened demand for their manufactured goods exports from China. More generally, a more marked slowdown in China, a major trade partner for both economies, will likely weigh on corporates' and consumers' willingness and ability to spend, hampering domestic demand. In Korea, the rating agency forecasts GDP growth of around 2.5 per cent in 2015 and 2016, while in Japan GDP it forecasts growth of around 0.5 per cent and 1 per cent in 2015 and 2016 respectively.

The trade linkages between China and the US and Europe are limited, despite a rapid increase in trade over the past 15 years, according to Moody's. The slight downward revision to the US forecast in 2016, to 2.6 per cent from 2.8 per cent previously, is accounted for by more prolonged negative effects of the stronger dollar and lower oil prices than previously expected.

The report also noted that while the broad-based equity price falls could have a negative impact on investor and consumer sentiment, they will not have a direct significant impact on economic activity in most countries, including in China. (SH)

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