Risks to the global economy have increased, with growth in the US, Eurozone and China looking more precarious, a major credit ratings agency has said today.
A steep drop in global share prices since the start of the year makes disappointing growth in the US more likely, Moody’s said. It believes the US economy will expand 2.3 per cent this year, but it could undershoot this forecast if investment falls more than expected in response to financial market trouble.
China’s economic slowdown will weigh more on global activity than previously believed. Moody’s said the drop in Chinese growth has been concentrated on the import-heavy sectors.
“China’s slowdown will be concentrated in heavy industry sectors that are significant importers,” said Marie Diron, a Moody’s senior vice president.
“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 six per cent.”
The ratings agency expects Chinese growth to drop to 6.3 per cent this year and 6.1 per cent next year, down from 6.9 per cent last year.
The Eurozone forecast is not overly optimistic either. The boost from cheaper oil and other commodities is expected to be outweighed by high
levels of debt in certain areas of the economy and uncertainty over the effectiveness of its €1.5 trillion (£1.2 trillion) asset purchase programme.
“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,” Diron added.