Global growth outlook dims: Moody’s

Citing increasingly tight financial conditions and high commodity prices, Moody’s Investors Service has cut its global economic forecasts for this year and next.

In a new report, the rating agency lowered its growth forecasts for the G20 economies to 2.5% from 3.1% in 2022, and cut its 2023 forecast from 2.9% to 2.1%.

The gloomier outlook is based on rising interest rates, which have tightened global financial conditions, and the effects of Russia’s invasion of Ukraine on global commodity prices.

“Global monetary and financial conditions will remain fairly restrictive through 2023,” said Madhavi Bokil, senior vice president at Moody’s, in the report. “Central banks will require decisive proof that high inflation no longer poses a threat to their policy objectives before letting up on their tight monetary stance.”

“The challenging global economic environment of today will be resolved with a sharp and disinflationary slowdown in economic growth,” she added.

At the same time, the situation in Ukraine represents a key uncertainty, the report noted.

“While Moody’s believes it is unlikely the conflict will broaden beyond Ukraine’s borders, such an event would mark a significant escalation,” it said, adding that the risk of further energy shocks “remains high.”

Moody’s also warned that China’s tough approach to Covid-19, along with the ongoing weakness in its property sector, also pose downside risks to the outlook.

As it stands, Moody’s expects emerging markets to outpace the G20’s advanced economies over the next couple of years.

Moody’s is projecting 3.3% growth for the G20’s emerging markets in 2022, and 3.8% growth in 2023, compared with 2.1% growth in 2022, and 1.1% in 2023, for the advanced economies.

Despite the gloom, Moody’s also pointed to some encouraging signs too.

It noted that recent high-frequency data points to “nascent stabilization after negative macroeconomic surprises caused intense financial market volatility in the first half of 2022.”

Moody’s added that commodity prices are set to soften.

“A pullback in goods demand is underway,” it noted. “Supply-chain problems are easing and global auto production is picking up. Producer price inflation, which is a broad measure of supply-side inflation, appears to have peaked in several countries.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.