Political threats could hit fragile global growth

 
Jake Cordell
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They didn't name him, but Moody's let it be known a Trump presidency would be bad news for the world economy
They didn't name him, but Moody's let it be known a Trump presidency would be bad news for the world economy (Source: Getty)

The global economy is in danger of being blown off course by any number of political risks stalking both advanced and emerging markets, Moody’s warned today.

In its quarterly economic outlook, analysts said they expected growth to be stable, if unspectacular, over the next two years, but highlighted a cocktail of threats or "downside risks" - from the US to Europe which might upset the balance.

“The nexus of low trade growth, low investment and slow productivity gains dampen potential growth rates globally,” the group said.

Chief among their concerns is November’s presidential election in the United States. Without casting explicit judgment on either Donald Trump or Hillary Clinton, Moody’s said: “A change in US policy stance that contributes to a weakening of the current global trade and security architecture could have a detrimental impact on global confidence and growth.”

Read more: International Monetary Fund says Brexit is hitting global growth

G20 economies are expected to grow by just 1.6 per cent this year, and 1.9 per cent in 2017, failing to improve on the 1.9 per cent registered in 2015. The firm has already downgraded its outlook for the UK following the result of the EU referendum, and is predicting the economy to grow by 1.5 per cent this year and 1.2 per cent next year.

It noted: “The uncertainty around the future of the economy outside the common market will continue to dampen business investment and consumer spending, as businesses hold back on hiring and making long-term investments, and as consumers postpone large spending decisions.”

Researchers added they expect “limited Brexit-related spillovers to the Eurozone” and have left their already-low growth forecasts intact for the single currency bloc at 1.5 per cent this year and 1.3 per cent next year.

Read more: China gives green light to stock market tie-up

Although it is not expecting a severe fallout from the UK’s vote to leave the EU, Moody’s said: “Political contagion represents the greatest risk” to the single currency bloc as a result of the vote. The group are also worried about “the political and geopolitical risks of a rise in nationalist and protectionist pressures” in both Europe and the United States.

However, Moody's struck a more positive tone on countries further afield, noting: “The outlook for emerging market economies has stabilised, buoyed by a combination of the modest recovery in commodity prices, better capital flows and a better near-term outlook in China.”

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