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Moody's announces global economic growth forecast

31 August 2022 19:05 (UTC +04:00)

Moody's Investors Service has reduced growth forecasts for G-20 economies and now expects real GDP to rise 2.5% in 2022, down from a May projection of 3.1%, while its forecast for 2023 has been cut to 2.1% from 2.9%, APA-Economics reports citing Moody's.

"Global monetary and financial conditions will remain fairly restrictive through 2023," Madhavi Bokil, Senior Vice President at Moody's, said in a report today. "Central banks will require decisive proof that high inflation no longer poses a threat to their policy objectives before letting up on their tight monetary stance. The challenging global economic environment of today will be resolved with a sharp and disinflationary slowdown in economic growth."

For G-20 advanced economies, Moody's forecasts 2.1% growth in 2022, and 1.1% in 2023. For G-20 emerging market countries, it projects 3.3% growth in 2022 and 3.8% in 2023. Although the global outlook is decidedly negative, high-frequency data point to nascent stabilization after negative macroeconomic surprises caused intense financial market volatility in the first half of 2022.

Global trade in durable goods and commodity prices are set to soften. A pullback in goods demand is underway. Supply-chain problems are easing and global auto production is picking up. Producer price inflation, which is a broad measure of supply-side inflation, appears to have peaked in several countries. Importantly, inflation expectations remain anchored over the medium term. Labor markets remain tight in advanced economies.

The invasion of Ukraine remains central to the larger macroeconomic picture. While Moody's believes it is unlikely the conflict will broaden beyond Ukraine's borders, such an event would mark a significant escalation. Further, the risk of further energy shocks remains high. As for monetary policy, it will be tricky for central banks to navigate to an equilibrium where inflation falls but economic activity does not slip into a deep recession. China's low tolerance for COVID-19 outbreaks and weakness in its property sector pose risks to its growth outlook.