Recession: Analysts Deliver a Blunt Reality Check on Global Economy

global economy recessionMoody’s warns that the global economy will grow less in 2016. It has also cut its gross domestic product (GDP) estimates for G20 countries as well as oil prices. The rating agency’s latest Global Macro Outlook also has some dire warnings. It predicts that the global economy risks recession, as it succumbs amid a spiral of low growth and falling investment.

Moody’s suggests fears over the sluggish global recovery have discouraged growth in a self-fulfilling prophecy. (Source:Increased risks to global growth cloud outlook in 2016-17,” Econotimes, February 18, 2016.)

Moody’s predicts that GDP for the G20 countries will grow at 2.6% in 2016 and 2.9% in 2017. As for oil prices, the ratings agency says that it can only cross the threshold of $40.00 a barrel by the end of 2017. In recent months, the downside risks to growth have increased in a sustained manner, while the recent market turmoil could have a domino effect on the economy. (Source: Ibid.)

“We expect global growth to rise only very modestly in 2016–17. The negative impact of commodity producers’ adjustment to persistently lower prices, a marked slowdown in China’s imports and tighter financing conditions for some emerging markets will outweigh positive factors, such as accommodative monetary policy in Europe, Japan and in the US.” Thus said Marie Diron, a Moody’s senior vice president and co-author of the report. (Source: “Moody’s: Increased risks to global growth cloud outlook in 2016-17,” Moody’s, February 18 2016.)

Moody’s suggests government budgets have few options in confronting inflation resulting from the combination of lower commodity prices and depreciating currencies. This is especially the case in Europe and Japan, where multiple rounds of quantitative easing measures have failed to convert into sustained economic growth. Essentially, says Diron, authorities across the global economy are running out of the ammunition they need to avert another sharp downturn, a global recession.

As for oil, Moody’s has lowered previous price estimates for 2016. Moody’s revised its oil price outlook, predicting $33.00 in 2016 and $37.00 in 2017. These are sharply lower than estimates of $53.00 and $60.00 issued just three months ago. The oil glut would keep prices low, even as the biggest oil producers agreed to an output cap (such as the one reached between Russia, Saudi Arabia, and Qatar this week). (Source: “World risks being sucked into ‘self-fulfilling’ spiral, warns Moody’s,” The Telegraph, February 18, 2016.)

The problem with the cuts is that an increase in production from Iran should more than make up for the cuts to supply in other countries—meaning there will be no change to the global economy’s total supply glut.

Moody’s also cut forecasts for Brazil’s economy. After first indicating a contraction of two percent, it now predicts contraction of three percent in 2016.

As for Russia, Moody’s predicts Russian GDP could fall as much as 2.5% this year, compared to a previous estimate of one percent.

Based on Moody’s predictions, it appears the global economy is at risk of a worldwide recession.

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