Global growth will fail to pick up steam over the next two years as the slowdown in China, lower commodity prices and tighter financing conditions in some countries weigh on the economy, Moody's Investors Service said yesterday.
The downside risks to Moody's forecasts for gross domestic product growth for the Group of 20 (G-20) developed countries of 2.6 per cent this year and 2.9 per cent next year have increased since the rating agency's last Global Macro Outlook in November. G-20 policymakers in some countries have limited fiscal and monetary policy space to boost growth or mitigate these risks, said Moody's.
"We expect global growth to rise only very modestly in 2016-17," said report co-author Marie Diron. "The negative impact of commodity producers' adjustment to persistently lower prices, a marked slowdown in China's imports and tighter financing conditions for some emerging markets will outweigh positive factors, such as accommodative monetary policy in Europe, Japan and the US."
For China, Moody's forecasts that growth will fall to 6.3 per cent this year and 6.1 per cent next year, from 6.9 per cent in 2015. For the United States, Moody's forecasts GDP growth of 2.3 per cent this year and 2.5 per cent next year.
The recent correction in financial asset prices poses some downside risks to the US forecast if tighter financing conditions weigh more significantly on investment than what is currently assumed, said Moody's.
It anticipates that the US Federal Reserve will continue to raise interest rates gradually, with the Fed funds rate at around 1.75 per cent by the end of next year.