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The improving outlook for global growth in 2017 appears to be sustainable as some of the biggest risks to advanced economies have subsided and emerging markets maintain their expansion, says Moody's Investors Service in a new report.
Moody's expects G20 economies, which account for 78% of the global economy, to collectively grow at an annual rate of 3.1% in 2017 and 2018, compared with growth of 2.6% in 2016.
"Overall, global growth is looking increasingly sustainable with economic data surprising to the upside in a number of emerging market countries," said Madhavi Bokil, a Vice President and Senior Analyst at Moody's. "The current momentum should continue, barring any negative surprises."
The risk of major euro area country leaving the European Union is no longer an immediate concern, with the election of Emmanuel Macron as President in France. The potential damage to global trade and economic growth from a pursuit of protectionist policies in the US, and consequent retaliation, also seems to have diminished for now.
The euro area started the year on a relatively strong note, showing broad-based improvement in various measures including manufacturing and services activity, car sales and sentiment indicators. Euro area GDP expanded by 0.5% in the first quarter. Moody's expects the ongoing recovery to continue throughout 2017 and 2018, supported by accommodative monetary conditions, a strengthening global economy and rising employment.
"In Europe, recovery is led by Germany where domestic demand will remain the main growth driver, supported by low energy prices, low interest rates and strong wage growth due to a tightening labor market," said Elena Duggar, an Associate Managing Director at Moody's.
The Brexit-related slowdown in the U.K. has been more modest and Moody's has raised its forecast for growth this year to 1.5% from 1%. Nonetheless, Moody's still expects weaker growth as investment spending slows as Brexit negotiations get underway and consumers feel the impact of accelerating inflation.
