Moody’s: Risks to global growth on the rise

In a report published on November 14, the ratings agency said it expects global growth to rise to 3% next year and 2.9 % in 2018, from 2.6% in 2016, but that the risks to the trajectory have risen.

Moody’s wrote: “We believe that the US and Japan are growing close to potential. Countries in the euro area are recovering at a stable, but modest pace. However, economic activity in the UK is expected to weaken, as uncertainty about its future economic path dampens investment.”

It added that the economic environment at the moment is characterised by “structurally low growth, low inflation and limited policy space, making the global economy and/or certain regions more vulnerable to negative developments”.

Moody’s identified four main risks to economic growth:

• Nationalistic and anti-globalisation sentiments gaining traction, as evidenced by the “unanticipated outcomes of the Brexit vote in the UK and the US presidential election”.

• The possibility of a “significant deceleration in China’s real GDP growth [which] could have significant spillovers for the global economy through trade and financial”.

• The risk of financial market volatility increasing as a result, for example, of a rise in US interest rates.

• Geopolitical risks, including sporadic intensification of geo-political tensions in the Middle East and parts of Asia.

According to Moody’s, 2016 will mark the slowest year for growth in global economic activity since the financial crisis. It said that “it is now largely accepted that there is a clear break in the current recovery from previous years, and that the pace of economic growth is settling at a lower level.”

The rating agency added that, although is anticipates global growth will gradually pick up over the coming years, it will settle at a low level over the medium term.

“In our baseline scenario, we expect the US economy to maintain moderate growth of slightly above 2% in the near term, the euro area to continue to recover with the aid of the ECB’s accommodative policy stance, and China’s economy to gradually decelerate, avoiding a hard landing.”

Moody’s wrote: “Behind the revisions to the growth outlook is the recognition that the working age population is declining due to demographic transitions in a number of countries. There has also been a slowdown in trend productivity growth.”

Last month, the United Nations warned that slowing overseas investment by businesses around the world threatens the growth of trade and the wider economy, and appealed to governments to support globalisation and avoid new restrictions on companies operating internationally.

• This article also appeared on WSJ City, a made-for-mobile app that combines the best of the Wall Street Journal and Financial News, tailored for an audience in the City of London. Download here

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