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Author Topic: Global economy on course for muted growth this year and next, says Moody's  (Read 288 times)
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August 18, 2015, 08:30:01 AM

Slowdown in China a major factor but ratings agency says UK growth is ‘robust and broad-based’ despite forecasting pace of expansion slowing to 2.4%

The global economy is on course for muted growth this year and next as it faces risks from a slowdown in China, the prospect of higher interest rates in the US and the lingering threat of a Greek exit from the euro, according to the latest forecasts from Moody’s.

Outlining the list of potential shocks that could knock even modest expansion off course, the credit rating agency said it did not expect the world’s leading economies to shake off the legacy of the financial crisis and return to their former growth averages for the next five years.

Moody’s forecasts GDP growth for the G20 to slow to 2.7% this year, down from 2.9% in 2014. The agency is expecting only a slight pickup to 3% growth in 2016, according to its latest quarterly global outlook, which feeds into its ratings on countries’ sovereign debts.

“The recovery in the US and, to a lesser extent, the euro area 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,” said the report’s author, Marie Diron.

“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.”

Moody’s said UK growth appeared “robust and broad-based” although it forecast a slowing pace from 2.7% expansion this year to 2.4% in 2016. It said the Bank of England may starting raising interest rates gradually from early next year, as long as a recent pickup in wage growth is maintained. The latest official figures, however, showed UK earnings growth either stalled or fell, depending on the measure used.

The agency used its quarterly update to revise down its oil price forecasts following the sharp falls in recent months and continuing signs that supply continues to outpace demand. Moody’s now expects Brent crude to average $57 (£37) a barrel in 2016, only a little higher than the 2015 average of $55. The price of the North Sea benchmark has more than halved from its peak price of $115 a barrel last summer, trading at $49 on Monday.

Moody’s warning over threats to the outlook from China follows sharp falls on the country’s stock markets last month as officials in Beijing brought in emergency measures to stabilise prices and shore up confidence in the world’s second biggest economy.

China’s surprise currency devaluation last week only served to heighten fears about the state of its economy and the potential impact on the rest of the world. In the biggest one-off devaluation of its currency in two decades the country’s central bank allowed the yuan, also called the renminbi, to weaken by nearly 2% in a day. That was followed by two successive days of further markdowns in the value of the currency.

“The recent depreciation of the renminbi has added concerns about what it may portend for China’s economic growth,” said Diron.

Moody’s forecasts that the official measure of Chinese growth will slow from 7.4% last year to 6.8% this year and 6.5% in 2016, falling towards 6% in subsequent years.

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