Investors calmer after Wall Street shrugs off missile launch; UK lending and US growth and jobs data awaited

Moody’s has raised its growth forecasts for Germany, France and Italy, and says the eurozone can expect “above potential” growth this year and next. But it has lowered its prediction for the US outlook.

In its Global Macroeconomic Outlook it said the eurozone is expected to grow by 2.1% in 2017 and 1.9% in 2018 compared to 1.7% last year.

Moody’s has revised up Germany’s GDP growth forecasts to 2.2% and 2.0% for 2017 and 2018 respectively. Similarly, Moody’s has raised its forecasts for France to 1.6% for both 2017 and 2018, from 1.3% and 1.4% as the recovery remains on track, driven by net exports and investment.

In Italy, Moody’s expects that the recovery will also continue to benefit from supportive monetary and fiscal policies, as well as stronger growth in the rest of the European Union. Moody’s has revised up its real GDP growth forecast to 1.3% in 2017 and 2018 from 0.8% and 1% respectively.

Moody’s expects US growth of 2.2% in 2017 and 2.3% in 2018, down from 2.4% and 2.5%, respectively. The revisions in 2017 are a result of weaker performance in the first half of the year. The lower growth forecast for 2018 reflects expectations of a more modest fiscal stimulus than previously assumed.

Monetary policy in the US should continue to tighten this year and next. Moody’s also expects euro area monetary policy to become less supportive in 2018, provided that the current growth momentum remains intact. The Bank of Japan’s policy stance will likely become less accommodative once the 2% inflation target is reached, which the central bank expects in 2019.

“A significant escalation of any of the situations in Korea, the South China Sea and other areas could have significant negative credit implications for the global economy,” said Elena Duggar, an associate managing director at Moody’s. Other risks include a protectionist turn by the US, and any financial market volatility stemming from sudden changes in market expectation regarding monetary policy tightening.

After Tuesday’s slide in the wake of North Korea’s latest missile launch, European markets are heading higher in early trading.

The FTSE 100 is up 0.5%, Germany’s Dax has added 0.7%, France’s Cac has climbed 0.6% and Spain’s Ibex is 0.7% better.

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