Emerg­ing mar­kets to see tight­ened mon­e­tary pol­icy in 2019: Moody’s

Financial Chronicle - - PLAN, POLICY -

Moody's In­vestors Ser­vice on Tues­day said larger emerg­ing mar­kets like In­dia are ex­pected to con­tinue to tighten their mon­e­tary poli­cies next year.

"In­dia, and In­done­sia are likely to grow near trend de­spite ex­ter­nal and do­mes­tic chal­lenges... We ex­pect larger emerg­ing mar­kets, like In­dia, In­done­sia, Brazil, Turkey and Ar­gentina, to con­tinue mon­e­tary tight­en­ing in 2019," Moody's said in a re­port.

In its Global Macro Out­look for 2018-19 re­leased in Au­gust, the US-based agency had said that it ex­pects In­dian econ­omy to grow by around 7.5 per cent in 2018 and 2019 as it is largely re­silient to ex­ter­nal pres­sures like those from higher oil prices.

In­dian econ­omy grew by 7.7 per cent in the Jan­uaryMarch quar­ter, and touched a two-year high of 8.2 per cent in the April-June quar­ter.

Moody's said In­dia could also face po­lit­i­cal risks, as also un­cer­tainty around eco­nomic and fis­cal re­forms, on ac­count of up­com­ing gen­eral elec­tions next year.

The re­port fur­ther noted that the out­look for global sovereign cred­it­wor­thi­ness in 2019 is "sta­ble", bal­anc­ing the slow­ing growth mo­men­tum against ris­ing un­cer­tainty over longer-term eco­nomic and fi­nan­cial sta­bil­ity.

The agency ex­pects G-20 growth to peak in 2018 at 3.3 per cent be­fore slow­ing to 2.9 per cent in 2019.

For ad­vanced economies in the G-20, Moody's be­lieves growth will fall to 1.9 per cent in 2019 from 2.3 per cent in 2018, a pat­tern that is mir­rored in key economies, in­clud­ing the US and Ger­many. Emerg­ing mar­kets in G-20 would see a slower growth at around 4.6 per cent in 2019 than 5 per cent in 2018.

"Our sta­ble out­look for sovereign rat­ings in 2019 bal­ances the ben­e­fits of con­tin­ued global growth against emerg­ing do­mes­tic and geopo­lit­i­cal risks," Moody's Man­ag­ing Direc­tor -- Global Sovereign Risk Alas­tair Wil­son, said.

De­spite the sta­ble out­look over­all, we are more mind­ful than in pre­vi­ous years of the po­ten­tial for un­fore­seen shocks to dis­rupt eco­nomic and fi­nan­cial sta­bil­ity over the next 12-18 months, Wil­son added.

Slow­ing growth means that the win­dow for global sov­er­eigns to ad­dress long­stand­ing credit chal­lenges in­clud­ing high lev­els of pub­lic and pri­vate debt, as well as longer-term trends re­lated to age­ing and in­equal­ity is clos­ing.

High debt, fall­ing growth and ris­ing rates ex­pose sov­er­eigns to the risk of shocks that un­der­mine debt af­ford­abil­ity and sus­tain­abil­ity. A num­ber of emerg­ing and fron­tier mar­kets are par­tic­u­larly ex­posed to tight­en­ing global fi­nan­cial con­di­tions and ris­ing US trade pro­tec­tion­ism, Moody's said.

As in pre­vi­ous years, the po­ten­tial for dis­rup­tive do­mes­tic or geopo­lit­i­cal events poses the great­est tail risk.

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