Moody's: Global growth to stabilize in 2017 as US, emerging market economies improve

Global economic growth will be tepid compared with historical averages over the next two years and risks remain, according to a report by Moody's Investors Service. Nonetheless, growth will pick up from the very weak levels in 2016, as the outlook for the US and emerging economies improves slightly.

Moody's expects global growth to climb to about 3% next year and in 2018 from 2.6% in 2016. Among major advanced and emerging economies, India will log the fastest growth next year, while Italy, Japan and Brazil will have the weakest expansions.

The US economy is forecast to expand 2.2% in 2017 from around 1.6% this year, as consumer spending is supported by healthy job and wage prospects, even as business investment remains weak.

 

Following the election, the risks to the US growth forecasts depend on the incoming administration's policies, said Madhavi Bokil, a Vice President and Senior Analyst at Moody's.

"While prolonged policy uncertainty could weigh on an already weak investment growth, there could be an upside to growth in the short term from increased fiscal expenditure, tax cuts or higher infrastructure spending," said Bokil. "A restrictive stance on trade would be detrimental in the medium term."

In emerging markets, growth will be driven by improvements in both the political environment and the economic sentiment in countries including Brazil and Argentina, as well as by reform momentum in India and Indonesia. The Chinese economy has continued to grow at a solid pace, in part through fiscal and monetary policy support.

"After five years of steady deceleration, emerging market economies are poised to return to faster growth in 2017," said Elena Duggar, an Associate Managing Director at Moody's. "However, although growth is improving, we expect it to be considerably lower than what emerging markets experienced in the years leading up to the financial crisis."

Moody's expects G20 emerging market growth to average about 5% in 2017 and 2018, up from an estimated 4.4% in 2016.

Underlying Moody's belief that emerging market economies will experience a turnaround next year is the fact that many of these countries have already undergone considerable external adjustments in response to slower trade and a steady decline in commodity prices.

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