Moody’s Says Global Growth Will Persist, Led by U.S., China

The recovery of the global economy will persist, Moody’s Investor Service said Monday, citing the recent growth spurt in the U.S. and the drive for better, yet slightly slower growth of the Chinese economy.

However, uncertain trade prospects, potentially tighter monetary policies — particularly in the U.S. and European Union — as well as geopolitical tensions in the Korean Peninsula will all be headwinds to global growth over the next year and beyond, said Li Xiujun, senior analyst at Moody’s.

In 2018, global economy will likely expand 3.2%, before tapering to 3.1% in 2019, Li said. The U.S. economy, one of the two global growth engines, is expected to grow 2.3% next year, picking up from an estimated growth of 2.2% in 2017, Li told a forum in Beijing on Tuesday.

Li said the improvement will likely come from strong corporate investment, robust exports, improvement in the labor market as well as individual consumption.

Another engine, China, is also looking up. Moody’s recently raised its view on China, now projecting gross domestic product (GDP) to grow 6.6% in 2018, compared with a prior estimate of 6.4%. Li said the optimism is based on improved profitability of industrial firms boosted by the government-mandated supply-side reform, as well as strong retail sales in China and recovering global trade.

Profits of Chinese industrial firms grew 23.2% during the first 10 month of the year, higher than a gain of 8.5% for all of 2016. The raw materials industry’s price index rose 7.5% in November from a year ago, faster than a 5.8% gain in the headline producer price index, government data showed.

“The policy signals sent at China’s 19th party congress showed that the government prioritized the quality of growth over speed in the short term,” Li said, adding that measures aiming to control financial risk and cut leverage could create downward pressure on growth in the short term.

Regarding rising tensions on the Korean Peninsula, Li predicted that Vietnam, the Chinese mainland and Singapore are more vulnerable to a conflict because South Korea is part of their electronic product supply chain, she said. Investor sentiment might also be shaken too, dragging global economic growth.

Li also said the U.S. Federal Reserve and the European Central Bank might continue to raise interest rates in 2018, although they will carefully craft their moves to avoid “huge fluctuations in the financial market.”

Contact reporter Pan Che (chepan@caixin.com)