“Higher inflation, higher interest rates” is Moody’s forecast

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New Delhi: According to a report, the global economy is facing an extraordinarily high level of uncertainty amid persistent inflation, monetary tightening, fiscal challenges, geopolitical shifts and financial market volatility on the brink of a downturn.

By 2024, a period of relative stability could set in

Moody’s Investors Service said in a report that global growth will slow in 2023 and remain sluggish in 2024. Nevertheless, a period of relative stability could emerge by 2024 if governments and central banks manage to steer their economies through the current challenges.

“For India, real GDP growth forecasts for 2022 have been lowered from 7.7 percent to 7 percent. We expect growth to slow to 4.8 percent in 2023 and then pick up to about 6.4 percent in 2024,” according to the Global Macro Outlook 2023-24 report.

Higher inflation, higher interest rates

The global economy faces a reckoning of inflation, geopolitics and political compromise. “The downward revision assumes that higher inflation, high interest rates and slowing global growth will dampen economic momentum more than we previously expected,” she added.

Moody’s Investors Service said it expects China’s real GDP to grow 3 percent this year, compared to our forecast of 3.5 percent in August, with growth expected to rise to about 4 percent in both 2023 and 2024.

“Our forecasts reflect the impact of COVID-19 control measures weighing on consumption. In addition, the downturn in the real estate sector will inflict losses on households, developers, bank and non-bank lenders and local government finances,” he added.

Moody’s had lowered growth expectations for the global economy

According to the report, Moody’s has lowered its expectations for global economic growth. “We expect real GDP growth for the G20 economies to slow to 1.3 percent in 2023, well below our previous estimate of 2.1 percent and below the estimated 2.5 percent growth this year Year.”

It went on to say: “Slowing economic activity in advanced economies, particularly in Europe and North America, will drive the sharp slowdown in growth in 2023. In 2024, global economic activity will accelerate, but only to a below-trend growth rate of 2.2 percent.”

The report said quantitative tightening, rising interest rates and the strengthening US dollar pose risks to financial stability. The decisive end to the decades-long era of low interest rates and quantitative easing has resulted in large financial losses on assets around the world, raising dollar-denominated funding costs and widening credit spreads, she added.

According to the report, the adjustment to higher interest rates has so far occurred without a major systemic financial event with global repercussions, and baseline forecasts suggest central banks would avoid a disorderly tightening of financial conditions.

Moody’s has lowered growth forecasts

Moody’s said it had reduced the number of G20 country forecasts, with risks shifting further to the downside. “We have lowered our growth forecasts for the US (Aaa stable), China (A1 stable), several European countries, Japan (A1 stable) and India (Baa3 stable), among others,” the report said.

It went on to say: “G20 emerging market growth outcomes will vary depending on economic structure. For example, large domestically-oriented emerging economies such as India and Brazil (Ba2 stable) will be less vulnerable to flagging G7 growth than export-oriented countries.”

The geopolitical risks are heightened

According to the report, the geopolitical risks are heightened and difficult to quantify. It was also mentioned that the Russia-Ukraine conflict would remain the key geopolitical risk to the larger macroeconomic picture.

Moody’s said that although it attributes a very low probability to the potential for the conflict to expand beyond Ukraine’s borders, such an event would signify a significant escalation and create further and serious economic downside risks. Geopolitical considerations are increasingly driving economic policies around the world as relations between major powers become increasingly confrontational, she added.



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