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Global growth forecasts slip with Ukraine war, China lockdowns: Moody’s

The rating agency has lowered global growth projections for both 2022 and 2023 as Russia’s invasion of Ukraine and pandemic lockdowns in China add to supply shocks and stoke inflation

Advanced global economies will expand 2.6 per cent in 2022 and emerging market countries will grow 3.8 per cent, down from March forecasts of 3.2 per cent and 4.2 per cent, respectively, Moody’s Investors Service said in a report on Thursday.

The rating agency has lowered global growth projections for both 2022 and 2023 as Russia’s invasion of Ukraine and pandemic lockdowns in China add to supply shocks and stoke inflation.

For India, Moody’s lowered the GDP growth forecast to 8.8 per cent for the current year from its March forecast of 9.1 per cent stating that increase in policy rates to curb record high inflation would slow the recovery in demand.

“Except for Russia, we do not currently expect a recession in any G-20 country in 2022 or 2023,” said Madhavi Bokil, senior vice president/CSR at Moody’s.

Currently high inflation rates could persist for several more months, owing to elevated energy and food prices.

“Still, there are multiple risks that could further undermine the economic outlook, including additional upward pressure on commodity prices, longer-lasting supply-chain disruptions, or a larger than expected slowdown in China. Aggressive monetary tightening, amid worries of long-term inflation expectations getting unanchored, could also become a catalyst for a recession.”

“The next few months will be critical: overall, if the global economy can remain resilient over this period, the growth path could become more sustainable through next year. Economies are returning to a post-pandemic normal, which involves reversals of some economic patterns to pre-Covid trends and permanent changes to others,” said the rating agency.

“As pandemic disruption wanes, households are once again spending more of their incomes on high-contact service activities and buying fewer goods. As central banks shift to tighten monetary policy in response to higher inflation, there has been a rise in financial market volatility and asset repricing. Bond yields the world over have risen in anticipation of further interest rate hikes, equity prices have fallen from their peaks and the US dollar has strengthened,” Moody’s said.

While maintaining its 2023 growth forecasts at 5.4 per cent for India, Moody’s argued that the rise in crude oil, food and fertilizer prices will weigh on household finances and spending in the months ahead and rate increases to check energy and food inflation “will slow the demand recovery’s momentum.”

On the geo-political risks threatening growth Moody’s observed that the global world order is being reshaped by great-power competition and geopolitical realignment.

Geopolitical rifts pitting China and Russia against the US and other Western powers “have magnified” over the last two years, it added.

Besides, Russia’s invasion of Ukraine represents a further elevation of geopolitical risks and if geopolitics starts guiding more economic decisions and if the world moves into a period in which countries align differently on specific issues, “policy choices will become less predictable and geopolitical and economic uncertainty will rise.”

— issacjohn@khaleejtimes.com