GDP growth to outpace developed nations: Emerging markets back in fashion, to attract more funds

In its ‘Global Macro Outlook 2016-17’ for May, Moody’s had said that India’s growth will pick up slightly, climbing to 7.5 per cent in 2016 and 2017, from 7.3 per cent in 2015.

By: ENS Economic Bureau | New Delhi | Updated: August 19, 2016 7:26:24 am

With investors desperately scouting for yield in a negative rate environment across developed economies, emerging markets (EM) are back in the reckoning for tapping global capital flows and better performing emerging markets such as India are likely to corner a bigger chunk of these inflows. The IMF estimates EM growth to increase every year for the next five years, even as developed economies stagnate.

On Thursday, the US-based Moody’s Investors Service retained India’s growth forecast at 7.5 per cent for 2016 even as it revised upwards the estimates for China to 6.6 per cent citing strong fiscal and monetary support. In its latest assessment of the global economy, Moody’s Investors Service said the outlook for emerging markets economies has stabilised but outlined the policy changes post the US presidential election in November as the most immediate downside risks to the global economic outlook.


Moody’s now expects China to grow at the rate of 6.6 per cent and 6.3 per cent in 2016 and 2017, respectively as compared to the previous forecast of 6.3 per cent and 6.1 per cent, with the higher growth rate being driven by significant fiscal and monetary policy support,” it said in a statement.

On India, it said: “Our growth expectations for India, Indonesia, Korea and Saudi Arabia are unchanged from our previous outlook publication in May.”

In its ‘Global Macro Outlook 2016-17’ for May, Moody’s had said that India’s growth will pick up slightly, climbing to 7.5 per cent in 2016 and 2017, from 7.3 per cent in 2015.

The agency said emerging markets have stabilised on account of the modest recovery in commodity prices, better capital flows and a better near-term outlook for growth in China. Moody’s said the modest upwards revision in China growth would have minimal impact on its forecasts for the rest of the world as imports to China continue to fall.

It, however, noted that medium-term downside risks to China’s growth outlook persist, especially if the reduced efficacy of policy support over time becomes apparent.

“Headwinds to emerging markets have moderated, driven by the economic stabilisation in China, the modest recovery in commodity prices, and the return of capital flows; however, we expect the US Federal Reserve to resume its interest rate tightening cycle at the end of this year,” Moody’s said.

A change in US policy stance that contributes to a weakening of the current global trade and security architecture could have a detrimental impact on global confidence and growth, and would prompt us to revise our forecasts, Moody’s said.

“The political and geopolitical risks, including a rise in nationalist and protectionist policies, are among the downside risks to global growth. In this context, the most immediate risk is a potential renegotiation of global trade pacts and security alliances, after this year’s US presidential election,” Moody’s added.

(with PTI inputs)

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