World Economy

Global Growth to Stabilize in 2017

Global Growth to Stabilize in 2017Global Growth to Stabilize in 2017
After five years of steady deceleration, emerging market economies are poised to return to faster growth in 2017

Global economic growth will pick up next year from the very weak levels this year, as the outlook for the US and emerging economies improves slightly, according to a report by Moody's Investors Service.

However, growth will be tepid compared with historical averages over the next two years and risks remain, the report said, news outlets reported.

Moody's expects global growth to climb to about 3% next year and in 2018 from 2.6% in 2016.

Among major advanced and emerging economies, India will log the fastest growth next year, while Italy, Japan and Brazil will have the weakest expansions.

The US economy is forecast to expand 2.2% in 2017 from around 1.6% this year, as consumer spending is supported by healthy job and wage prospects, even as business investment remains weak.

Following the election, the risks to the US growth forecasts depend on the incoming administration's policies, said Madhavi Bokil, a vice president and senior analyst at Moody's.

In emerging markets, growth will be driven by improvements in both the political environment and the economic sentiment in countries including Brazil and Argentina, as well as by reform momentum in India and Indonesia. The Chinese economy has continued to grow, in part through fiscal and monetary policy support.

"After five years of steady deceleration, emerging market economies are poised to return to faster growth in 2017," said Elena Duggar, an associate managing director at Moody's. "However, although growth is improving, we expect it to be considerably lower than what emerging markets experienced in the years leading up to the financial crisis."

Moody's expects G20 emerging market growth to average about 5% in 2017 and 2018, up from an estimated 4.4% in 2016.

Pessimistic About Sovereign Credit

The outlook for global sovereign ratings is negative possibly until 2018 amid expectations for low economic growth and high public-sector debt, Moody's said.

Around 26%, or 35 out of 134 sovereigns, have a negative outlook as of Monday, Moody's said in a note, adding that it was the largest proportion since late 2012 during the European debt crisis.

Only 12 sovereigns currently have a positive outlook, it said.

"Since the start of 2016, a third of rated sovereigns have experienced a decline in their economic strength, and two-fifths in their fiscal strength," it said.

"The sources of shock varied, but for many emerging markets it arose from the oil/commodities price shock, with the impact concentrated among commodities exporters in the (Persian) Gulf Arab states, Sub-Saharan Africa and Central Asia."

Limited prospects for growth were set to continue pressuring the outlook.

"One of the key credit constraints for most rated sovereigns is the persistently low growth environment," said Alastair Wilson, Moody's managing director for sovereign risk.

"Monetary policy's ability to support growth in advanced economies is diminishing, and in many emerging markets it is constrained by above-target inflation and exchange-rate pressures. So we are seeing a gradual but broad-based shift in policy towards loosening fiscal policy in order to lift growth."

Moody's expected that high public-sector debt loads would rise further amid those expansionary fiscal policies.

"While higher public investment in infrastructure could stimulate demand over the near term and raise longer-term potential growth, very few sovereigns can afford to take on more debt without incurring some loss of credit strength," the Moody's report said.

At the same time, it expected that domestic and regional political tensions will hurt countries' ability to develop and implement new policies.

Among the risks, Moody's cited uncertainty over how the US election outcome might affect the Aaa-rated US fiscal strength over the medium term as well as potential changes to its trade and security policies.

Other regions faced issues as well, Moody's noted, citing concerns over the risks of further fragmentation in the European Union after the UK voted to leave the bloc.

Emerging economies also faced the possibility that capital could flow out of their countries.

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