Tags: moodys | economy | shock | global policy makers

Moody's: Global Leaders Have 'Limited Room' to Fight Economic Shocks

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By    |   Tuesday, 10 Nov 2015 09:30 AM

Moody's warns that global policymakers lack the tools to deal with any unexpected negative economic shock, after years of ultra-low interest rates and high-profile liquidity injections.

The ratings agency feels that the “hoped-for growth in both developed and emerging markets has not materialized – and China, one of the main sources of global growth in the past few years, is showing worrying signs of further disappointing," CNBC explained.

"The world's second-biggest economy's growth in gross domestic product (GDP) is expected to slow to 6.2 percent by 2017, after spending much of the past decade at more than 8 percent growth,” CNBC explained.

"Authorities lack the large fiscal and conventional monetary policy buffers to protect their economies from potential shocks," Marie Diron, Moody's senior vice president of credit policy, wrote in a research note Tuesday.

"Muted global economic growth will not support a significant reduction in government debt or allow central banks to raise interest rates markedly."

The main risks to the global economic outlook would stem from a bigger-than-expected fallout from the Chinese slowdown or from tighter financing conditions in other emerging markets, but the “direct effects on the global economy” would “likely be limited,” Moody’s said, MarketWatch reported.

“However, advanced economies would be unable to do much to shore up global growth, given policymakers’ limited room for manoeuvre on fiscal and monetary policy and the high leverage we’re seeing in a number of sectors and countries,” said Diron.

Moody’s predicts growth in gross domestic product for the G-20 nations will average 2.8% in 2015 to 2017, only 0.3 percentage point higher than in 2012 to 2014. That’s also below the 3.8% average recorded in the five years before the financial crisis, the credit ratings agency said.

To be sure, Moody's isn't the only respected entity to warn about the global economy.

The Paris-based Organization for Economic Co-operation and Development, a think tank funded by wealthy countries, cut its 2015 growth forecast to 2.9 percent in its bi-annual economic outlook from the 3.0 percent it forecast in September.

Global trade flows have fallen dangerously close to levels usually associated with a global recession, although actions taken by China and others should ensure a pick-up in 2016, the OECD said in a report on Monday.

Last month, the head of the International Monetary Fund predicted that a relentless deceleration in the economies of the developing world will cause global growth to slow this year and only pick up a bit more pace in 2016,

IMF Managing Director Christine Lagarde said growth was picking up in the euro area and Japan and still looked robust in the United States and Britain.

"The not-so-good news is that emerging economies are likely to see their fifth consecutive year of declining rates of growth," Lagarde said, warning they could be hit by an extended period of low commodity prices.

"Global growth will likely be weaker this year than last, with only a modest acceleration expected in 2016," she said.

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Moody's warns that global policymakers lack the tools to deal with any unexpected negative economic shock, after years of ultra-low interest rates and high-profile liquidity injections.
moodys, economy, shock, global policy makers
511
2015-30-10
Tuesday, 10 Nov 2015 09:30 AM
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