Stronger Recovery Likely to Pose Further Challenges for Emerging Markets, Says Moody's

The global economic recovery is gathering pace, but stronger growth in advanced economies is likely to be associated with further economic adjustment in some emerging markets, says Moody's Investors Service in a new report.


With a stronger growth trajectory now evident in the US and the UK, and a gradual recovery still likely in the euro area, advanced economies now appear to have reached a genuine turning point.


After the sluggish recoveries seen following the global financial crisis, several countries are set for robust growth over the coming years. While that should support a gradual strengthening in emerging market activity over the medium term, in the short term the ongoing adjustment in capital flows will continue to pose challenges for several emerging  economies.


Moody's continues to expect a gradual acceleration in economic activity in the G-20 advanced  economies, with real GDP growth of around 2.3% this year, followed by around 2.5% in 2015. This is somewhat stronger than in the November 2013 report. In the G-20 emerging economies, Moody's forecasts for growth are little changed from November, notwithstanding further weakness in some emerging markets. Overall, Moody's expects GDP growth in the major emerging markets of around 5% this year, before rising towards 5.5% during 2015.


Overall, the magnitude of risks around the central economic outlook remains relatively low, compared with some of the substantial uncertainties seen in recent years, with large global risks such as the euro area debt crisis and US fiscal deadlock having significantly receded. At present, it seems unlikely that the crystallization of any single country-specific risk could derail the global economy.


"With several advanced economies now likely to see a more robust pace of recovery, the outlook for global growth has continued to brighten," says Colin Ellis, Associate Managing Director. "However, in the near term stronger growth in advanced economies is likely to be associated with further painful adjustments in some emerging markets, as investors rebalance their portfolios."

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