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Moody's released the report Global Macro Outlook: 2015-16

May 13, 2015 12:10 IST

Moody’s, the US research analytics firm, on 12 May 2015 released the quarterly Global Macro Outlook: 2015-16 report.

As per the report, stronger US dollar and shifts in capital flows will widen the gap between global economies in 2015-16. The anticipated tightening of US monetary policy as compared to monetary easing by other central banks reflects different prospects for growth and inflation around the world.

The divergence will be between those economies that have built up resilience, like the US and India, and those that are vulnerable to negative shocks, like Brazil, South Africa and Turkey. This gap will fuel shifts in capital flows and currency values and affect the global economic outlook.

The report further forecasts that although the stronger US dollar will dent the growth prospects of US economy but still the economic growth will be robust. Moody's forecasts US GDP growth of 2.8% in both 2015 and 2016.

Moody's also expects that GDP growth in G20 economies will be 2.8 percent in 2015, which remains broadly unchanged compared to 2014, however, the G20 GDP growth will increase to around 3 percent in 2016.

The weaker euro and lower oil prices is forecast to give a boost to the euro area economy, with GDP growth of around 1.5 percent in both 2015 and 2016. Lower oil prices and the weaker euro will boost growth in the short term.

In China, domestic factors will mainly account for economic developments. Moody's maintains its forecast that GDP growth will slow to 6.8 percent in 2015 and 6.5 percent in 2016, from 7.4 percent in 2014.

Moody’s on India’s growth prospects

India’s GDP will grow at a strong pace of 7.5 percent 2015-16, which is the highest among G20 economies, helped by the reforms drive and lower oil prices.

The report also forecasts a broadly balanced current account for the first time in 10 years. This has been due to lower energy import bill and restriction in gold imports.

Furthermore, Moody’s forecasts that, the Make-in-India campaign will give a boost to domestic manufacturing and other reforms measures would bring in higher investment and boost growth.

On inflation front, it said that inflation will remain moderate helped by adoption of inflation targeting policy by Reserve Bank of India (RBI). This would in turn ensure that higher inflation on food products does not spill onto other goods, services and wages and will raise real incomes, profits and overall GDP growth.

According to the road map, RBI intends to lower retail inflation to 6 percent by January 2016 and 4 percent (+/- 2%) thereafter.

Downside risks to Global economy

The report has identified several risks that could lead to lower growth in some individual countries. These risks are

(a)    a Greek exit from the euro area,
(b)    a disorderly reaction to tighter US monetary policy,
(c)    the impact of any future correction of Chinese equity or property prices, and
(d)    a possible disorderly liberalisation of China's capital account.

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