Global economy on course for muted growth

Global economic growth will be muted over the next two years as weakening expectations in China will limit impact on positive outlook, leading analysts said.

"The recovery in the US and, to a lesser extent, the euro area and Japan, will be offset by the ongoing slowdown in China, low or negative growth in Latin America and only a gradual Russian recovery from its recession this year," Moody's Investors Service said in a quarterly report.

While global investors are significantly more positive on the outlook for Europe after the European Central Bank's announcement of quantitative easing to reflate the region's economy, the global growth outlook is little-changed, reflecting declining expectations on China, according to the BofA Merrill Lynch Fund Manager Survey for August.

"Global investors have shifted their attention from Greece to China amid continued concern of a Chinese recession. Respondents are scaling back their expectations for economic growth," BofA Merrill Lynch said in a report.

It said investors are sending a clear message that they are positioned for lower growth in China and emerging markets. China recession is now rated the number one "tail risk" by 52 per cent of panel.

"Fifty-three per cent of investors say the global economy will strengthen in coming year, down from 61 per cent in July," BofA Merrill Lynch said.

Marie Diron, senior vice-president for credit policy at Moody's, said a sharp or long-lasting correction in asset prices in China is one of the risk factors which could result in lower G20 growth than in our baseline forecasts.

In China, Moody's maintains its baseline GDP growth forecast of 6.8 per cent this year and 6.5 per cent in 2016, before falling towards six per cent by the end of the decade. "The recent stock market correction is unlikely to have a significant impact on China's GDP growth. The depreciation of the renminbi so far will also not have any marked economic impact." Moody's forecast is that US growth will be at 2.4 per cent in 2015, before rising to 2.8 per cent in 2016.

Moody's euro-area forecast is for growth of 1.5 per cent in both 2015 and 2016. Japan is one of the few countries that has seen its growth forecast revised up by Moody's this quarter.

Cautioning that slow reforms pace could dent growth, Moody's cut India's growth forecast for this fiscal to around seven per cent from 7.5 per cent projected earlier, citing below-normal rainfall.

Moody's said the gradual global economic recovery has an impact on oil markets. "The increase in world oil supply continues to outpace demand and Moody's has revised down its oil price assumptions," the rating agency said.

Moody's now expects the price of Brent to average $57 a barrel in 2016, only a little higher than the 2015 average of $55.

- issacjohn@khaleejtimes.com