ECONOMIC growth will decelerate across advanced and emerging market economies, according to Moody’s research released yesterday.
In the US, the ongoing removal of monetary accommodation, waning fiscal stimulus, and restrictive trade policies will start weighing on financial markets and economic activity, the company said.
Other advanced economies will also see cyclical moderation towards trend growth. Slowing global trade will have an adverse impact on open economies including Japan, South Korea and Germany.
“We expect global growth to slow to under 3 per cent in 2019 and 2020, from an estimated 3.3 per cent in 2017-18. Real growth in G20 advanced economies will decelerate from around 2.3 per cent in 2018 to 1.9 per cent in 2019 and 1.4 per cent in 2020,” the research company said.
“Growth in G20 emerging markets will decline from an estimated 5 per cent in 2018 to 4.6 per cent in 2019, followed by a pick up to 4.9 per cent in 2020. Contractions in Turkey and Argentina, as well as slowing in China, will pull down aggregate G20 emerging markets growth in 2019.
“Gradual quantitative tightening by major central banks will continue to have large spillover effects outside the currency areas. As major central banks start to rescind forward guidance and withdraw monetary accommodation, global financial volatility, term premia and credit spreads will gradually rise.“
Moody’s said: “Our baseline forecasts assume that this will happen relatively smoothly, occasionally interrupted by bouts of financial market volatility resulting from portfolio rebalancing by international investors.
However, the possibility of a sudden and disorderly snap back in medium- to long-term interest rates is a major risk to global growth.
The company said trade and geopolitical disputes between the US and China will worsen in 2019. The United States-Mexico-Canada Agreement (USMCA) will likely be ratified in 2019, with agreement on rules of origin, conflict resolution, agriculture and government procurement.
“In contrast, we expect that the US-China trade conflict is unlikely to be resolved any time soon. We assume that the recently imposed tariffs on $200 billion worth of Chinese goods will likely rise from 10 per cent to 25 per cent in January 2019, as announced,” Moody’s said.
“In both countries, the overall direct macro impact on growth will be manageable. However, persistent and broadening tensions between the two largest economies globally are increasingly likely to have widespread negative implications by undermining investment globally.”