The weak pace of global recovery will persist until at least 2014, says Moody's Investors Service in its latest macro-risk report, adding that the structural economic adjustments that need to ensue will materialise only slowly.
Moody's says that risks to the global forecast remain to the downside, and are broadly unchanged from those discussed in August.
The main risks to the global macro outlook stem from: (1) a deeper than currently expected recession in the euro area accompanied by deeper credit contraction, particularly if triggered by a further intensification of the sovereign debt crisis; (2) excessive fiscal tightening in the US in 2013, given recent political gridlock; (3) an oil-price supply-side shock resulting from resurfacing geopolitical risks; and (4) the potential for a hard landing in major emerging markets, including China, India and Brazil.
"We are revising down our forecasts due to the continued adjustment to global imbalances and heightened uncertainty weighing on growth around the world," says Colin Ellis, Moody's Senior Vice President for Macro Financial Analysis. "We expect sub-trend growth in most advanced economies over the near term, alongside a softer pace of expansion in emerging markets as well."
Moody's says that only a modest recovery is likely in the G-20 advanced economies. The rating agency maintains its forecasts for relatively healthy growth in the US, whilst the euro area as a whole is expected to stagnate during 2013.
For the G-20 economies overall, Moody's expects real growth of around 2.7% in 2012, followed by 3.0% in 2013 and 3.3% in 2014.
"In our view, fiscal consolidation and volatility in financial markets will continue to weigh on business and consumer confidence in advanced economies, while heightened uncertainty will continue to hamper spending, hiring and investment. At the same time, growth prospects for emerging economies have moderated, reflecting the further deceleration in world trade and a lack of significant new impetus from domestic demand," explains Ellis.