The prolonged decline in oil prices and weaker expansion in the Chinese economy have dimmed growth prospects of several economies, but it does not signal a threat of global recession, Moody’s Investors Service said today.
“Risks to global growth have increased, but despite the recent market volatility, we don’t believe that the world’s advanced economies will enter recession,” said Moody’s Senior Vice-President Elena Duggar.
According to the rating agency, the continuous decline in crude oil prices and sluggish growth in China have prompted a reappraisal of global economic growth prospects, causing risk aversion to rise and financial market conditions to tighten.
“While the current environment will curb growth in specific regions, it does not presage a global recession,” Moody’s said in a statement.
Moody’s, in February, took negative rating action for a number of corporates, banks and sovereigns whose revenues, loan portfolio performance and tax receipts are heavily dependent on the production of oil and other commodities.
“We believe that the positive impact of lower commodity prices on global growth helps mitigate the negative effect from the financial market turbulence,” it said.
Moody’s expects growth in the G-20 advanced countries to be stable at 1.8 per cent for 2016 and 2 per cent for 2017.
“... the positive effect of lower commodity prices to a large extent will mitigate negative factors such as weaker consumer and business confidence levels caused by increased financial market volatility, and deteriorating trade linkages with emerging markets,” it said in a report.
Moody’s believes that the current macro-credit environment is similar to conditions in 1987 or 1998 when credit problems within certain sectors of the global economy were very severe, but the rest experienced only a modest slowdown in economic activity.