The rating agency Moody’s estimated this Wednesday that the world economy will slow down in the second half of the year as a consequence of the more restrictive financial conditions and the effect of the recent turbulence in the banks, which would even translate into “mild recessions” in powers such as USA, Germany and United Kingdom.
“As central bank interest rates approach their highs for this (money) cycle in most advanced and emerging economies, higher borrowing costs and tighter lending are now permeating credit conditions. and slowing down investment, consumption and employment“, says the report published by Moody’s cited by the agency APD.
This context -they anticipated- “will lead to a downward change in the economic activity overall in the second half of the year”.
Until now, G20 economies did not feel the monetary tightening and this is due to the “tail wind” of the post-pandemic recovery.
This rebound allows service activities such as travel, tourism and entertainment to continue to benefit from the reopening, while the excess savings accumulated in the pandemic continues to be channeled into consumption and assistance to households to overcome the loss of purchasing power caused by inflation.
However, for Moody’s these conditions do not last much longer, and the effects of monetary policy will eventually be felt in the real economyincluding the service sector.
They even warned that the economies could weaken even more if the central banks, faced with the persistence of inflation, decide to toughen their policies even more.
In any case, the agency believes that the end of global rate hikes is nearand, indeed, the global proportion of central banks that raise them and their Rise rates have already begun to fall since the end of last year.
What will the economic cycle be like in the main countries?
Among the forecasts, Moody’s anticipates a expansion of 2.1% for all the G20 economies (one tenth more than in its previous February estimate) and 2.2% for 2024 (two tenths less).
In the economies considered to be the most advanced within that bloc, the slowdown will be felt even more, forecasting 0.9% for this year and 1% for 2024.
Within this framework, the agency anticipates that “mild recessions” in the United States, the United Kingdom and Germany; and a stagnation in France and Italy.
These contractions will be felt in some sections of the remainder of the year and would not affect the annual balance: Moody’s forecasts a growth of 1.1% for the United States, 0.1% for UK, 0.4% for Franceand 0.8% in the case of Italy; while Germany would not change.
For next year, the situation varies depending on the country with expansions of 0.9% for the United States, 0.8% for the United Kingdom, 0.7% for France, and 0.4% in Italy.
In the opposite direction, the emerging G20 countries will have a greater boost in their economies with forecast growth of 3.9% for this year and 4% for the next.
When mentioning which are the main risks for the global macroeconomy, Moddy`s points out three in particular: the failure of advanced economies to control the inflationthe materialization of risks in financial stabilityand the potential default in the United States if there is no agreement in Congress to raise the debt limit.
Although food and energy prices have started to decline in recent months, and core components have stabilized, both the inflation overall and core are well above targets for major advanced and emerging market economies.
For this reason, the rating agency estimates that central banks will maintain a restrictive monetary policy until 2024, thus ruling out any rate cut for this year. In the case of the Federal Reserve and the European Central Bank (ECB), the agency does not believe that they will do so until the first quarter and half of next year, respectively.