Moody's: Global growth strengthens as risks abate; China likely to avoid sudden slowdown

The improving outlook for global growth in 2017 appears to be sustainable as some of the biggest risks to advanced economies have subsided and emerging markets maintain their expansion, says Moody's Investors Service in a new report.

Moody's expects G20 economies, which account for 78% of the global economy, to collectively grow at an annual rate of 3.1% in 2017 and 2018, compared with growth of 2.6% in 2016. The potential damage to global trade and growth from a pursuit of protectionist policies in the US appears to have diminished for now.

"Overall, global growth is looking increasingly sustainable with economic data surprising to the upside in a number of emerging market countries," said Madhavi Bokil, a Vice President and Senior Analyst at Moody's. "The current momentum should continue, barring any negative surprises."

Growth in China will continue to slow over the year due to reduced property-related investment as liquidity-tightening measures of the central bank, including limits on home mortgage lending, take effect. Accordingly, we expect that GDP will grow at 6.6% in 2017, in line with the government's target of 'at least 6.5% and higher if possible."

"We continue to believe that the near-term risk of disorderly deceleration of growth in China is limited," said Elena Duggar, an Associate Managing Director at Moody's. "Government policy will target limiting the growth of leverage, rather than bring about a rapid deleveraging that could be potentially destabilizing."

India's economy will strengthen as the impact of last year's demonetization fades. The government has been successful in pushing through several key reforms, which will help reduce inefficiencies and improve trend growth in the long run.

Moody's forecasts that India's economy will grow 7.2% in 2017, 7.7% in 2018 and will gradually accelerate to around 8% over the next three to four years.

Despite the pickup in growth this year, it is worth noting that trend growth remains low globally and factors including, changing demographics, muted investment, low productivity growth and stagnant real wage growth continue to curtail the strength of the global economy. The lack of fiscal buffers and limited scope for effective monetary accommodation in the event of shocks remain a concern even as growth strengthens.

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