Moody’s claims global economy will maintain momentum, warns of uncertainty from changing U.S. policies

WASHINGTON, U.S. - Credit rating agency Moody's has predicted that global economy is set to maintain momentum, even though it is threatened by the shifting U.S. policies that have injected uncertainty into the market. 

The Moody’s Investors Service, that recently released a report that stated that the global economy would expand in 2017, thanks to the modest momentum of emerging market economies.

It also attributed the expansion to developed countries performing close to their potential, that Moody’s said would help further growth. 

However, the report noted that the outlook could be impacted due to the significant shifts in U.S. policy on various issues, including trade and immigration.

The report presented by Moody’s stated that it expects the rate of growth in G-20 countries to pick up to around 3 percent in 2017 and 2018 from an estimated 2.6 percent in 2016. 

It said that growth in emerging economies would climb to 4.8 percent this year, and reach 1.9 percent for advanced economies.

According to Madhavi Bokil, a Vice President and Senior Analyst at Moody’s, “Global demand is rebounding and much of the adjustment to lower commodity prices is now behind us. However, structural factors, such as aging populations and high debt levels, combined with a reduced pace of globalization, put a cap on long-term trend growth.”

Moody’s, in January this year had raised it forecast for U.S. growth to include a mix of potential cuts to federal income and corporate tax rates, as well as an increase in public infrastructure spending. 

Now, the credit rating agency expects the U.S. economy to expand by 2.4 percent in 2017 and 2.5 percent in 2018.

It had previously estimated expansion by 2.2 percent and 2.1 percent, respectively. 

The growth, it said would be sufficient to absorb remaining slack in the labour market.

The agency said it would also help push up nominal wages and inflation. 

Over the medium term, Moody’s expects growth to return to around 1.9 percent.

As the Federal Reserve continues to raise interest rates, the effect would be offset by tighter monetary conditions, it said, even though it noted that fiscal policy could support growth in the U.S.

Elena Duggar, an Associate Managing Director at Moody’s said in a statement, “It is highly likely that the direction of the world economy over the next two years will be shaped by policy developments in the U.S. It is clear that some of the new administrations’ proposed policies could have considerable impact on the economic, environmental and geopolitical landscape worldwide.”

Mexico, for one is already witnessing the impact of shifting U.S. trade policies.

The agency estimates a high likelihood of trade restrictions, set to target Mexico specifically, that would dampen sentiment and investment in Mexico by more than Moody’s had previously anticipated. 

“After revising growth projections for 2017 and 2018 down in November, we have lowered them again and now expect growth to be even lower at 1.4 percent in 2017 and 2 percent in 2018,” the agency said.