With the global economy holding up relatively well, a soft landing is expected for much of the G20, says Moody’s Investors Service.
In a new report, the rating agency said that amid steady global economic growth, it is forecasting the G20 will collectively record 2.6% growth this year, up slightly from its previous forecast, albeit down from the 2.9% posted in 2023.
Within the G20, the advanced economies are expected to record 1.7% growth this year and next, down from 1.8% in 2023, Moody’s said.
Emerging markets are projected to grow at 4.0% this year and 3.9% next year, down from 4.7% last year.
Moody’s said it has specifically increased its 2024 forecasts for the U.S., a handful of other advanced economies, and for China, “reflecting a more modest slowdown in global growth than previously expected.”
“Inflation is likely to remain on a downward path and easier monetary policy is on the horizon,” it said.
Moody’s is forecasting rate cuts this year, although the timing and size of those cuts remain up in the air.
“We expect the Fed and other G-10 central banks to maintain meeting-by-meeting, data-dependent approaches through this rate adjustment process,” it said.
Assuming that inflation continues to ease, Moody’s expects the U.S. Federal Reserve to start cutting rates in the second half of 2024.
“Depending on how quickly the inflation rate falls, we could see the federal funds rate decline by 50-75 basis points (bps) this year, followed by 100-125 bps of cuts in 2025,” it said.
Despite the prospect of rate cuts this year, the lagging effects of higher rates and the ongoing geopolitical risks are likely to weigh on growth, it noted.
“Governments are increasingly opting for trade restrictions to protect their industries and workers against competition from China. These could be met with a counter response and potentially raise geopolitical tension,” it said.
“Risks from the Russia-Ukraine war and Middle East conflict seem manageable so long as they do not expand, but any sustained increase in commodity prices could be detrimental to the global economy and financial markets,” it concluded.