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Weaker Chinese economic growth and decline in oil prices no sign of a recession: Moody’s

09 Mar 2016 Evaluate

After Fitch, another global rating agency, Moody's Investors Service’s has said that global headwinds are no sign of a recession. The agency said that the prolonged decline in oil prices and weaker expansion in Chinese economy have dimmed growth prospects of several economies, but it does not signal a threat of global recession. It said that the positive impact of lower commodity prices on global growth helps mitigate the negative effect from the financial market turbulence.

Moody’s also said that 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. It added that oil prices continue the decline that began in June 2014, reaching lows not seen in more than a decade. It currently expect oil and gas prices to remain close to current lows for several years, as excess supply in the market is slowly absorbed. It has estimated oil prices to be around $33 per barrel in 2016, which will rise to $ 38 a barrel in the next and to $ 43 in 2018.

It further said that the main cause of the low oil prices is an 'inverse supply shock' as due to technological changes, excess investment in capacity, and geopolitical factors like OPEC's lack of agreement on curtailing supply, supply has outpaced demand even as demand has continued to grow. For advanced countries, Moody's maintained its growth forecast broadly stable and said that it expects 1.8% real GDP growth for the G-20 advanced economies in 2016 - 0.3 per cent below its November 2015 expectation - and 2.0 per cent in 2017.

Moody’s said that it believes 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. It said that downside risks to global growth have increased as second-round effects from the fall in commodity prices, the slowdown in China, the slowdown in emerging markets and the financial markets turbulence are still working their way through the real economy.

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