GOLDILOCKS

MOODY’S REVISES UP TURKEY’S GROWTH FORECASTS

The international credit rating agency, Moody’s, revised Turkey’s growth forecasts, projecting that it would go up from 3.2 percent to 4 percent in 2018 and from 3.3 percent to 3.5 percent in 2019. “After growing by a solid 6.7 percent in 2017, well above potential, we expect real GDP growth to slow,” the agency’s Global Macro Outlook: 2018-2019, released on Feb. 27, noted. The slightly higher growth forecasts for 2018 and 2019 reflect Moody’s view that the Turkish government will continue to undertake fiscal measures to keep economic growth high in advance of the November 2019 presidential election, it said.

G20 economies will collectively grow 3.4 percent in 2018 and 3.2 percent in 2019, up from prior forecasts of 3.2 percent and 3.1 percent, respectively, Moody’s said. Moody’s also revised real GDP growth forecasts upwards for the U.S., Japan, Germany, France,

U.K., South Korea, Russia, Saudi Arabia and South Africa. Notably, the euro area is exhibiting the best economic performance since the 2012 sovereign debt crisis. Moody’s raised its projections of U.S. real GDP growth to 2.7 percent in 2018 and 2.3 percent in 2019, from a prior forecast of 2.3 percent and 2.1 percent, respectively.

These revisions account for stronger than expected momentum going into 2018 and additional fiscal stimulus from the February 2018 congressional budget deal. The recent financial market selloff does not alter Moody’s U.S. and global growth outlook. “Stimulative policies at full employment can push the economy above potential in the short run,” Madhavi Bokil, Moody’s senior analyst, said. “But we are also watching the consequent rise in interest rates, which can crowd out private sector demand. We expect the economy to grow more slowly in 2019 as credit conditions naturally tighten.”

Stronger inflationary pressures will lead to a steady convergence of the monetary policy outlooks of global central banks over the next two to three years. The current “goldilocks” period of synchronized upward growth momentum, low inflation, low interest rates, steadily rising asset prices and historically low volatility will gradually wane. “The recent return to financial market volatility is likely here to stay,” Elena Duggar, associate managing director at Moody’s, said.