Moody's Cuts G20 Economic Outlook To 2.8% From 3.1% For 2016

WASHINGTON (MNI) - Moody's Investors Service revised its forecast for GDP growth in the G20 economies to 2.8% for 2016 from the prior estimate of 3.1% mainly on the back of a slowdown in China and lower commodity prices.

In the ratings agency's report entitled "Downward Revisions to 2016 Global Economic Outlook," the GDP growth forecast for China was cut to 6.3% from 6.5% in 2016.

Recently published economic indicators show China's slowdown in exports and investment has continued into the third quarter of 2015, Moody's said. There are also signs employment growth is weakening to a more marked and broadly-based deceleration in the Chinese economy than previously expected.

Ongoing policy support from the Chinese government is likely to only partly offset the underlying slowdown in the Chinese economy, according to Moody's.

"Slower growth in China makes a significant rebound in commodity prices in the near term unlikely. A more prolonged period of low commodity prices will lead to muted export revenues and investment for commodity-exporting G20 economies," said Marie Diron, Moody's senior vice president, in a press release.

Moody's now expects negative GDP growth in 2016 in Brazil and Russia, extending the 2015 recessions. The recent fall in commodity prices and further depreciation of the currencies exacerbate an already unfavorable domestic economic environment in both countries, they said.

At -1%/0% for Brazil and -1.5%/-0.5% for Russia, Moody's 2016 forecast ranges are now 0.5 and 1 percentage point lower than in our previous forecast.

Korea and Japan will also face dampened demand for their manufactured goods exports from China. More generally, a more marked slowdown in China, a major trade partner for both economies, will likely weigh on corporates' and consumers' willingness and ability to spend, hampering domestic demand.

In Korea, the rating agency forecasts GDP growth of around 2.5% in 2015 and 2016, while in Japan GDP it forecasts growth of around 0.5% and 1% in 2015 and 2016 respectively.

The trade linkages between China and the U.S. and Europe are limited, despite a rapid increase in trade over the past 15 years, the report said. The slight downward revision to the U.S. forecast in 2016, to 2.6% from 2.8% previously, is accounted for by more prolonged negative effects of the stronger dollar and lower oil prices than previously expected, it added.

Moody's also notes that while the broad-based equity price falls could have a negative impact on investor and consumer sentiment, they will not have a direct significant impact on economic activity in most countries, including in China.