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Moody's lowers its 2016 growth forecast for the US to 2% (from 2.3%)

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The latest from Moody's Global Credit Research: Global growth to remain muted as emerging markets weigh on US, advanced economies

Moody's has lowered its growth projection for the US to 2.0% from 2.3% for 2016
  • To reflect weakness in the first quarter
  • Forecast 2.3% growth in 2017
  • The strong recent pick-up in consumer confidence and spending, and the continued strength of the services industry underlines the resilience of the US economy.
  • "Consumption should pick up through the remainder of the year as the labor market continues to improve and wages rise"
  • "Nonetheless, the drag on the US economy exerted by the combination of subdued global demand and weak business investment is likely to remain."
Moody's currently forecasts G20 emerging markets growth at 4.2% for 2016 (compared to 4.4% in 2015)
  • For G20 advanced markets growth is predicted to slide to 1.7% for 2016 from 1.9% in 2015
Outlook for growth:
  • ... remains uneven and largely weaker than over the past two decades
  • Global trade remains subdued
  • Spillovers from emerging markets shocks to financial markets globally have increased substantially
Moody's expects that the Federal Reserve will raise its benchmark interest rate at most twice this year
  • Policy makers will raise rates gradually
  • Will give investors ample forward guidance as they seek to minimize the negative impact that higher borrowing costs will have on growth and the potential disruption they could cause to global capital markets.
On China:
  • A more pronounced slowdown in China's economy than anticipated is currently one of the biggest risks to the global economy
  • China's economy will slow gradually from 6.9% in 2015 to around 6.3% in 2016
  • "The fears of a Chinese hard landing have eased in recent months with first quarter data suggesting that the economy is stabilizing"
  • "However, the government's focus on achieving specific growth targets, could come at a cost to the quality of growth."
  • China's growth continues to be supported by increased borrowing, which ultimately will increase longer-term risks, particularly within the banking system.      
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