World Economy

Moody’s Says G20 GDP to Grow 2.7%

Moody’s Says G20 GDP to Grow 2.7%Moody’s Says G20 GDP to Grow 2.7%

Global economic growth will be muted over the next two years, Moody's Investors Service said in a quarterly report Tuesday.

Moody's maintains its baseline forecast for G20 GDP growth at 2.7% this year, rising to around 3% in 2016, compared to 2.9% in 2014, Moody's said in its 'Global Macro Outlook for 2015-16'.

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 main downside risks to Moody's 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 eurozone. All these risks would have a marked negative effect on the global economy compared with our current forecasts.

The recovery in the US and, to a lesser extent, the eurozone 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.

China a Risk

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.

In China, Moody's maintains its baseline GDP growth forecast of 6.8% this year and 6.5% in 2016, before falling towards 6% 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 renminbi so far will also not have any marked economic impact.

India Growth Lowered

Moody's Investors Service also lowered India's growth forecast to 7% for 2015, from 7.5% projected earlier, citing monsoon concerns and cautioned that further risks to growth stems from slow pace of reforms.

"We have revised our GDP growth forecast down to around 7%, in light of a drier than average monsoon although  rainfall was not as low as feared at the start of the season," it said.  

Saying that India's growth outlook is resilient beyond short-term monsoon effects, Moody's has retained growth forecast for 2016 at 7.5%. "One main risk to our forecast is that the pace of reforms slows significantly as consensus behind the need for reform weakens once the least controversial aspects of the government’s plan have been implemented," Moody's said.  

It said as a net importer of commodities, India's growth outlook benefits from the fall in commodity prices over the past year. Also the country is "little affected" by demand from China and more generally slower global trade growth.

Moody's said economic activity will continue to strengthen on the back of a gradual implementation of reforms that foster domestic and foreign investment. 

Consumption growth will continue to be supported by large income gains as inflation has fallen to relatively low levels by the country's past standards and favorable demographics.

Weak Rates Help Eurozone

Moody's eurozone forecast is for growth of 1.5% 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, labor 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.

In the eurozone, the threat of Greece leaving the single currency has receded but not gone away, the ratings agency warned. Although Athens has clinched a new €86 billion ($96 billion) bailout package, Moody’s has forecast a “sharp recession” in Greece, as “capital controls, heightened risk of exit from the eurozone in June and July and now lack of visibility about the policy and economic environment put spending on hold”.

Fitch is forecasting eurozone economic growth of about 1.6% annually between 2015-2017.