World economy’s ability to fight shocks dented

 

The warning signs around global economic growth are growing, with Moody’s, the influential ratings agency, adding its voice to a clamor of gloomy forecasts about the next couple of years.

More worryingly, policymakers are lacking the tools to deal with any unexpected negative shock, after years of ultra-low interest rates and high-profile liquidity injections, according to the ratings agency.

 

The hoped-for growth in both developed and emerging markets has not materialized – and China, one of the main sources of global growth in the past few years, is showing worrying signs of further disappointing. The world’s second-biggest economy’s growth in gross domestic product (GDP) is expected to slow to 6.2 percent by 2017, after spending much of the past decade at more than 8 percent growth.

“Authorities lack the large fiscal and conventional monetary policy buffers to protect their economies from potential shocks,” Marie Diron, senior vice president of credit policy, wrote in a research note Tuesday.

“Muted global economic growth will not support a significant reduction in government debt or allow central banks to raise interest rates markedly.”

 

The agency has kept its forecasts for global growth “broadly unchanged” from its last quarterly outlook, and predicts G20 GDP growth will average 2.8 percent in 2015-17, far from the take-off in growth many were hoping for. This would mean only a 0.3 percent point gain from the lean years 2012-14 and fall substantially below the 3.8 percent average of the five years before the global financial crisis.

The Organisation for Economic Co-operation and Development (OECD) cut its forecasts for global growth slightly to 2.9 percent for this year on Monday, and warned about uncertainty and the emerging market downturn.

While it predicted global growth would be boosted in 2016 and 2017 to 3.3 percent and 3.6 percent, respectively, the OECD also warned of risks to these forecasts in a downbeat assessment of the global economy.

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