Moody's revises down global growth forecast

February 17, 2020 (MLN): Moody’s Investors Service on Monday revised down its global GDP growth forecast and now expecting G-20 economies to collectively grow by 2.4% in 2020, a softer rate than last year, followed by a pickup to 2.8% in 2021.

“Coronavirus outbreak has diminished optimism about prospects of an incipient stabilization of global growth this year. With the virus continuing to spread, it is still too early to make a final assessment of the impact on China (A1 stable) and the global economy,” it said.

Moody’s have reduced its growth forecast for China to 5.2% in 2020 and expecting it to grow by 5.7% in 2021.

Moody’s also lowered real GDP growth forecast for Australia (Aaa stable), Korea (Aa2 stable) and Japan (A1 stable) on account of the coronavirus. Additionally, it reduced growth projections for India (Baa2 negative), Mexico (A3 negative) and South Africa (Baa3 negative), a reflection of domestic challenges in those countries rather than external factors.

“Our baseline assumes the outbreak will cause disruption in Q1 economic activity. Under our baseline forecast, the spread of the coronavirus will be contained by the end of Q1, allowing for resumption of normal economic activity in Q2,” the report said.

It further added that at present, China's economy is by far the worst affected. However, the rest of the world also has exposure as a result of a hit to global tourism in the first half of this year and short-term disruptions to supply chains.

The effects on the global economy could compound if the rate of infection does not abate and the death toll continues to rise, because supply chain disruptions in manufacturing would become more acute the longer it takes to restore normalcy.

Pause in US-China trade tensions does not materially change our assessment of global growth prospects.

The “phase one” trade deal reduces risk of near-term escalation of the trade battle between the US (Aaa stable) and China, but uncertainty has not gone away.

The adverse economic consequences of the coronavirus will make it even more challenging for China to meet its import commitments under the agreement.

Moreover, US tariffs on $370 billion of imports from China remain in place, while US tariffs on steel and aluminum are also still in effect.

Trade risks stemming from other disputes also remain elevated. For example, the US threat of 25% tariffs on auto and auto parts imports, which would primarily affect large auto-producing countries such as Germany (Aaa stable) and Japan, remains on the table. And 2020 being a US presidential election year, uncertainty over US trade policy will likely stay elevated, report highlighted.