Moody's: Stronger Global Growth in 2018 is Credit Positive for Most Sectors

Strong, broad-based global economic growth will benefit most rated sectors in 2018, Moody's Investors Service says in its 2018 cross sector credit conditions outlook.

"The improving outlook underscores the strength of the global economy overall," says Moody's Associate Managing Director Elena Duggar. "Global credit conditions in 2018 will be defined by healthy economic growth and a supportive funding environment, which will help to balance against a build-up of longer-term risks." "Nevertheless, secular shifts such as the demographic transition, rapid technological change and climate change will present new credit challenges," adds Duggar.

Moody's expects above trend global GDP growth of 3.2% in 2018 and 3.1% in 2019, similar to 2017 and up from the 2.5% growth achieved in 2016. Unlike in previous years, Moody's expects growth to be more broad-based and sustained in the year ahead. Growth in G20 advanced economies is expected to be stable, with growth of approximately 2.0% in 2017, 2018 and 2019, compared with 1.5% in 2016, while emerging markets will grow at a rate of 5.4% in 2018 and 5.3% in 2019, accelerating from the 5.0% 2017 growth and the 4.4% 2016 growth.

"Our outlook is more positive overall than last year," says Moody's Elena Duggar. "While there is still uncertainty over trade policy and political risks, these risks have abated somewhat. Also, importantly, we have a stronger sense of the direction and timing for monetary policy."

A healthy global economic environment is setting the stage for a reversal of expansionary monetary policies in advanced economies. The cyclical economic recovery will be accompanied by uncertainty over the duration of the credit cycle amid a build-up of risks to financial stability after a decade of low interest rates. Moody's remains confident, however, that central banks will begin pursuing balance sheet normalization in 2018 and 2019.

In the report, Moody's identifies six themes that are likely to shape the global credit environment in 2018 and beyond. They include: growth, financial stability, political and geopolitical risk, technology and innovation, climate change and sustainability, and demographics.

Moody's view of technology and innovation, climate change, and demographics take a more prominent role in our assessment of future credit conditions.

Rapid technological change, for example, will continue to transform production processes, business models, and government regulation, all of which will impact credit fundamentals. Climate change and demographic trends, such as aging populations, also pose significant medium and longer-term challenges to growth on a global scale. The ability of governments, industries and market participants to adapt to these changes will determine if their creditworthiness remains resilient.

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