No sig­nif­i­cant re­bound in global growth in 2015

Financial Mirror (Cyprus) - - FRONT PAGE -

Global GDP growth is un­likely to re­bound sig­nif­i­cantly in the next two years, as a grad­ual slow­down in the Chi­nese econ­omy and struc­tural im­ped­i­ments in the euro area, Brazil and South Africa con­tinue to weigh on eco­nomic ac­tiv­ity, Moody’s In­vestors Ser­vice said in its quar­terly Global Macro Out­look re­port.

For the G20 economies as a whole, the rat­ing agency ex­pects GDP growth of around 3% in 2015 and 2016, after 2.8% in 2014.

“Most fac­tors that have weighed on global GDP growth in 2014 will re­main in place in the next two years, in­clud­ing the grad­ual slow­down in China,” said Marie Diron, a au­thor of the re­port. The lat­ter has led to a very sharp de­cel­er­a­tion in its im­ports and has damp­ened ex­port growth glob­ally.

“More­over, struc­tural de­fi­cien­cies in some coun­tries and re­gions - in­clud­ing the euro area, Brazil and South Africa - are also pre­vent­ing a sig­nif­i­cant re­bound in growth,” con­tin­ued Diron.

Th­ese do­mes­tic fac­tors are im­ping­ing on eco­nomic ac­tiv­ity to a greater ex­tent than pre­vi­ously en­vis­aged and have driven a down­ward re­vi­sion in Moody’s 2015 forecasts for many coun­tries and re­gions, in­clud­ing the euro area, Ja­pan and Brazil. In con­trast, Moody’s ex­pects sus­tained ro­bust growth in the US, UK and In­dia over the next two years.

Moody’s ex­pects ro­bust growth in the US over the next two years (+3% and +2.8% in 2015 and 2016 re­spec­tively), as strong job cre­ation and favourable fi­nanc­ing con­di­tions cre­ate an en­vi­ron­ment con­ducive to re­alise pent-up de­mand for con­sump­tion. Mean­while, strong prof­its and low ex­ter­nal fi­nanc­ing costs will con­tinue to foster in­vest­ment by US com­pa­nies, whilst rel­a­tively brighter growth prospects in the US will tend to favour in­vest­ment at home rather than abroad.

In Brazil, slower ex­ports to China have ex­ac­er­bated un­der­ly­ing weak­nesses and drive Moody’s GDP growth forecasts of around 1% in 2015. An el­e­vated level of gov­ern­ment debt lim­its the room for fis­cal stim­u­lus mea­sures, whilst high in­fla­tion con­strains the cen­tral bank’s abil­ity to ease mon­e­tary pol­icy in support of growth and ham­pers pur­chas­ing power and con­sump­tion. More­over, un­der­in­vest­ment has re­sulted in de­fi­cient in­fra­struc­ture. Re­forms to ad­dress th­ese de­fi­cien­cies will take time to come to fruition and hence have a limited vis­i­ble ef­fect on GDP growth over the next two years.

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