In what is now a well-worn path, ratings agency Moody’s has become the latest organisation to downgrade its expectations for global GDP next year, slicing their forecast for G20 economic growth for 2016 to 2.8% from 3.1% seen previously.
Partially explaining the downward revision, Moody’s downgraded its forecast for Chinese GDP with economic growth now expected to slow to 6.3%. Previously the group saw the Chinese economy growing at 6.5%.
“Ongoing policy support from the Chinese government is likely to only partly offset the underlying slowdown in the Chinese economy,” said Moody’s.
The group also suggests the outlook for commodity prices remains subdued, something that will be of interest to major commodity producers such as Australia.
“Slower growth in China makes a significant rebound in commodity prices in the near term unlikely,” says Marie Diron, senior vice president at Moody’s.
“A more prolonged period of low commodity prices will lead to muted export revenues and investment for commodity exporting G20 economies.”
The group also believes that Japan and South Korea “will face dampened demand for their manufactured goods exports from China”, suggesting that it “will likely weigh on corporates’ and consumers’ willingness and ability to spend, hampering domestic demand”.
Moody’s forecast Japanese GDP will expand by 0.5% while that in South Korea will slow to 1.0%.
Not only does the ratings agency forecast slower growth for China, two of the other three “BRIC” nations – Russia and Brazil – are expected to remain in recession.
“We see negative GDP growth in 2016 in Brazil and Russia, extending the 2015 recessions,” said Moody’s.
“The recent fall in commodity prices and further depreciation of the currencies exacerbate an already unfavourable domestic economic environment in both countries.
“At -1%/0% for Brazil and -1.5%/-0.5% for Russia our 2016 forecast ranges are now 0.5 and 1 percentage point lower than in our previous forecast.”
For the world’s largest economy – the US – the group has also lowered its expectations for GDP growth next year, forecasting an expansion of 2.6% compared to its previous estimate of 2.8%.