SINGAPORE: 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 in a quarterly report on Thursday.

The downside risks to Moody’s forecasts for G20 GDP growth of 2.6 per cent in 2016 and 2.9pc in 2017 have increased since the rating agency’s last Global Macro Outlook in November.

Furthermore, G20 policymakers in some countries have limited fiscal and monetary policy space to boost growth or mitigate these risks.

“We expect global growth to rise only very modestly in 2016-17,” said Marie Diron, a Moody’s Senior Vice President and co-author of the report.

“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 in the US.”

The report, “Global Macro Outlook 2016-17: Global Growth faces rising risks at times of policy constraint”, is available on The research is an update to the markets and does not constitute a rating action.

In China, Moody’s forecasts GDP growth of 6.3pc in 2016 and 6.1pc in 2017, compared to 6.9pc in 2015 as the authorities use some of their available policy space to support the economy and foster a very gradual economic slowdown.

“China’s slowdown will be concentrated in heavy industry sectors that are significant importers,” Ms Diron added. “As a result, the impact of the slowdown on the rest of the world – when measured in terms of the value of exports to China and profits generated there – will be sharper than implied by China’s GDP growth above 6pc.”

Moody’s has revised down its GDP growth forecasts for Brazil, Russia, Saudi Arabia and South Africa. Lower oil prices, and additional fiscal tightening in order to contain government debt dynamics, account for the revisions for Russia and Saudi Arabia.

Moody’s forecasts that GDP will shrink again this year in Brazil and Russia, by 3pc and 2.5pc respectively, growth will fall to close to zero in South Africa and will be around 1.5pc, the lowest in decades, in Saudi Arabia.

In the United States, Moody’s forecasts GDP growth of 2.3pc in 2016 and 2.5pc in 2017, broadly unchanged from last year.

In Japan, GDP growth is expected to be below 1pc both this year and in 2017, despite the boost from lower commodity prices and the weaker yen. The Bank of Japan’s 2pc inflation target will remain elusive, despite negative policy interest rates.

The main risks to Moody’s forecasts include a marked depreciation in China’s renminbi. For China, the potential gains in price competitiveness would be more than offset by renewed capital outflows in anticipation of a further weakening of the currency. A weaker renminbi would also reduce the profits of foreign companies that sell to China, hamper the price competitiveness of other emerging markets and intensify disinflationary pressures in Japan and the euro area.


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