The downside risks facing the global economic recovery have diminished since the end of last year, says Moody's Investors Service in its latest macro-risk report, but a slow pace of economic growth is still likely in many economies including Ghana.
The new report, entitled "Global Macro Outlook 2013-2014: Downside Risks Have Diminished".
The report updates Moody's baseline forecasts for 2013-14 and discusses the downside risks to the forecasts. It supersedes the rating agency's previous Global Macro Risk Scenarios report, which was published in November 2012.
With the US having avoided the full scale of potential disruption implied by the so-called 'fiscal cliff', the easing of financing stresses in the euro area, and increasing signs that key emerging markets will avoid a hard landing, Moody's believes there are now fewer potential stumbling blocks on the path to global recovery.
However, the balance of risks to the macro outlook still remains skewed to the downside, stemming from: a deeper than currently expected recession in the euro area accompanied by deeper credit contraction, particularly if triggered by a further intensification of the sovereign debt crisis; weaker-than-expected growth in major emerging markets following the recent slowdown; and an escalation of geopolitical tensions, resulting in adverse economic developments.
"While our central forecasts are little changed, the downside risks have definitely abated over the past three months," says Colin Ellis, Moody's Senior Vice President for Macro Financial Analysis. "However, we still expect a subdued global recovery with sub-trend growth in most advanced economies over the near term, alongside a relatively soft pace of expansion in emerging markets as well."
Moody's says that only a modest recovery is likely in the G-20 advanced economies. The rating agency expects real growth for the G-20 of around 2.9% in 2013, followed by 3.3% in 2014, with positive growth in the US this year, whilst the euro area as a whole is expected to stagnate during 2013.
"Despite the recent improvement in financial conditions, we still need to see that feed through to the real economy in many countries. Fiscal consolidation will continue to weigh on aggregate demand and confidence, and private sector appetite for risk is still relatively weak, hampering hiring and investment.
In addition, we still need to see further rebalancing in many emerging market economies, given the weak outlook for external demand," Mr. Ellis added.