Global economic growth is set to remain muted over the next two years and the outlook faces further risk from the Chinese asset price deflation, a likely U.S. interest rate hike and a possible exit of Greece from the euro area, Moody's Investors Service said on Tuesday.
In a quarterly report, the rating agency retained its baseline forecast for G20 GDP growth at 2.7 percent this year after 2.9 percent expansion last year. The growth rate is seen climbing to nearly 3 percent next year.
These 2015-16 growth forecasts were still below the G20's average growth rate before the financial crisis, Moody's said. The agency does not expect growth in the G20 to return to those pre-crisis averages within the next five years.
"The recovery in the US and, to a lesser extent, the euro area and Japan, will be offset by the ongoing slowdown in China, low or negative growth in Latin America and only a gradual Russian recovery from its recession this year," Moody's Senior Vice President-Credit Policy Marie Diron said.
"A sharp or long-lasting correction in asset prices in China is one of the risk factors which could result in lower G20 growth than in our baseline forecasts."
Over the next two years, other main downside risks to the global growth outlook include a disorderly response to the US Federal Reserve's anticipated policy tightening and a Greek exit from the euro area, Moody's said. All these risks would have a marked negative effect on the global economy compared with our current forecasts, it added.
Moody's also retained China's baseline GDP growth forecast of 6.8 percent this year and 6.5 percent in 2016, before falling towards 6 percent by the end of the decade. The agency does not expect the recent stock market correction as well as the yuan depreciation to have a significant impact on China's GDP growth.
U.S. growth was forecast at 2.4 percent this year, before rising to 2.8 percent in 2016. Growth is set to be led by robust job creation, high corporate profits, favorable financing conditions and pent-up demand, the report said.
Euro area was projected to grow 1.5 percent in both this year and next. Though the weaker euro and lower oil prices have given a boost to the region's economy, there is no evidence from either increased investment, labor productivity or faster than usual employment growth that structural reforms have markedly lifted the region's growth potential yet, Moody's said.
The agency raised the growth forecast for Japan, while it sharply lowered the projection for countries such as Brazil, Indonesia, Korea and Mexico in 2015-16.
Moody's also lowered its oil price assumptions citing the impact of the gradual global economic recovery on oil markets. As the increase in world oil supply continues to outpace demand, Moody's said it now expects the Brent price to average $57 a barrel in 2016, only a little higher than the 2015 average of $55.
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