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Moody’s Predicts Feeble Global Growth Until 2017

Global economic growth will be gloomy over the next two years, eclipsed by the slowdown in China and other emerging markets, according to a report released Tuesday by Moody’s Investors Service.

The credit rating firm has forecast average growth of about 2.8% in the top 20 world economies in 2015-17, “broadly unchanged” from its last quarterly macro outlook in August but well below the 3.8% prediction recorded in the five years before the global financial crisis.

“Muted global economic growth will not support a significant reduction in government debt or allow central banks to raise interest rates markedly,” said Marie Diron, Moody’s senior vice president of credit policy and author of the report. She warned, “Authorities lack the large fiscal and conventional monetary policy buffers to protect their economies from potential shocks.”

Relentlessly low commodity prices—owing to a large inventory build-up, a slow supply response and weak demand from key importers—and muted global growth will maintain disinflationary pressures and impact revenues to cause emerging markets’ contribution to gross domestic product (GDP) to fall to the lowest levels in more than a decade.

“The direct effects on the global economy from both of these potential risks would likely be limited,” Diron adds. “However, advanced economies would be unable to do much to shore up global growth, given policymakers’ limited room for maneuver on fiscal and monetary policy and the high leverage we’re seeing in a number of sectors and countries.”

Emerging markets will negatively impact global growth

In China, Moody’s predicts GDP will grow by less than 7 percent in 2015, before falling to 6.3% next year and 6.1% in 2017. (By comparison, the country’s prime minister, Li Keqiang, recently declared annual economic expansion of at least 6.5% through 2020.)

The report also said that “a range of country-specific factors” will contribute to lower growth in other emerging markets; political uncertainty in Brazil and Russia, for instance, and infrastructure shortages in South Africa.

But while slow growth in those nations will impact the global economy as a whole, Moody’s said it’s not likely to disrupt growth in advanced markets. The firm has forecast average GDP growth of around 2.5% in the United States, the United Kingdom and Korea, and 1.5% for the Eurozone.

The quarterly report comes on the heels of the Organization for Economic Co-operation and Development (OECD) cutting its own 2015 global growth forecast on Monday, down to 2.9% from September’s 3 percent prediction.