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Moody’s estimates 2017 and 2018 growth of the US economy at 2.2% and 2.1, respectively. The estimated trend pace of growth will be sufficient to absorb remaining slack in the labor market, further pushing up nominal wages and inflation.
Moody’s estimates 2017 and 2018 growth of the US economy at 2.2% and 2.1, respectively. The estimated trend pace of growth will be sufficient to absorb remaining slack in the labor market, further pushing up nominal wages and inflation.

Moody’s Raises US Growth Forecast, Germany Stable

It is highly likely that the direction of the world economy over the next two years will be shaped by policy developments in the US

Moody’s Raises US Growth Forecast, Germany Stable

In January this year, Moody's raised its forecast for US growth to incorporate a mix of potential cuts to federal income and corporate tax rates, as well as an increase in public infrastructure spending. Now, Moody's has further raised this growth forecast and expects the US economy to expand by 2.4% in 2017 and 2.5% in 2018. And Germany was affirmed at Aaa with a stable outlook.
Previously, Moody's had estimated 2017 and 2018 growth of the US economy at 2.2% and 2.1, respectively. The estimated trend pace of growth will be sufficient to absorb remaining slack in the labor market, further pushing up nominal wages and inflation, says Moody's Investors Service in a report. Moody's expects that growth will return to around 1.9% over the medium term.
However, while fiscal policy could support growth in the US, the effect would be offset by tighter monetary conditions as the Federal Reserve continues to raise interest rates.
"It is highly likely that the direction of the world economy over the next two years will be shaped by policy developments in the US," said Elena Duggar, an associate managing director at Moody's. "It is clear that some of the new administrations' proposed policies could have considerable impact on the economic, environmental and geopolitical landscape worldwide."
The impact of shifting US trade policies is already being seen in Mexico with a high likelihood of trade restrictions targeted specifically at Mexico. This will increase risk aversion and dampen sentiment and investment in Mexico by more than Moody's had previously anticipated. After revising growth projections for 2017 and 2018 down in November, Moody's has lowered them again and now expect growth to be even lower at 1.4% in 2017 and 2% in 2018.

Germany
Moody's Investor Service affirmed Germany's government bond rating at Aaa and maintained a stable outlook. The mark represented the country's economic strength, which is supported by robust output and productivity growth. In addition, Germany's strong fiscal position and low funding costs are ensuring that the nation's high debt levels remain affordable.
Moody's said that there were some potential downgrade risks to the outlook. Notably, a significant risk of eurozone fragmentation. This could be prompted by countries such as France and Italy if the perceived risk of their exit from the currency bloc rises sharply.
Additional comments from Moody's on Germany:
Real GDP growth seen at 1.6% in 2017
Private consumption to be main German growth driver
Debt-to-GDP ratio to fall under 60% by 2020
Fiscal surpluses to decrease moderately.
Global Economy
For the global economy, Moody's expects expansion this year. The modest momentum of emerging market economies, coupled with developed countries performing close to their potential, will help the global economy expand this year, says the report.
However, it adds a word of caution and states that the outlook could still be impacted by significant shifts in US policy on a number of issues, including trade and immigration.
Moody's expects the rate of growth in G-20 countries to pick up to around 3% in 2017 and 2018 from an estimated 2.6% in 2016. Growth in emerging economies will climb to 4.8% this year, and reach 1.9% for advanced economies.
"Global demand is rebounding and much of the adjustment to lower commodity prices is now behind us," said Madhavi Bokil, a vice president and senior analyst at Moody's. "However, structural factors, such as aging populations and high debt levels, combined with a reduced pace of globalization, put a cap on long-term trend growth."
However, Moody sees four major systemic risks to its forecasts: global economic risks associated with shifts in US trade, risks to global financial markets and emerging market economies if US interest rates were to rise faster than anticipated; sharp US dollar appreciation; a sudden and sharp deceleration in China; and political and fragmentation risks in the eurozone.

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