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Global growth will slow, but there are ‘areas of resilience’, says Moody’s

  • A global slowdown in growth and more severe inflation risks persist, but some pockets of resilience remain, Moody’s Investors Service said.

An aerial view shows the Central Bank of India building, in Mumbai, India, on September 28, 2022. (Photo by Niharika Kulkarni/NurPhoto via Getty Images)

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The global economy is expected to slow as inflation remains more sticky than expected, but there may be some “pockets of resilience,” according to Moody’s Investors Service.

“We expect a slowdown in growth globally, and that will have an impact on (emerging markets) Asia through business conditions as well as access to finance in the region,” Marie Diron, managing director of sovereign and sub-sovereign risk global. at Moody’s Investors Service, she told CNBC on Thursday.

Diron said the slowdown can be attributed to three factors: persistently higher interest rates, slowing growth in China and strains in the financial system.

While central banks have managed to steer the global economy and “create a disinflation trend” by raising interest rates, inflation risks remain a sticking point, he said.

“There are still risks that inflation will be tougher… than currently expected, and that would lead to higher risks for longer and slower growth,” the CEO explained.

The Federal Reserve began its steady stream of rate hikes in March 2022as inflation went up to its highest level in 40 years.

Over the past year and a half, the US central bank has raised the benchmark federal funds rate to between 5.25% and 5.5%. Federal Reserve Chairman Jerome Powell Last Friday it warned of additional interest rate hikes. could be on the table.

A second risk is stress on the financial system, Diron said.

“We’ve seen banks absorb that period of higher rates, which has had some positive impacts on margins for some, but it also needed an adjustment in businesses, an adjustment to continue attracting deposits,” he explained.

“It could be that there are pockets of stress that have not yet fully emerged that may materialize later this year or next.”

Finally, China is a third source of vulnerability.

Moody’s does not expect a quick recovery in the world’s second-largest economy and sees “relatively slow growth in China with implications across the region,” Diron said.

“It’s a really clouded outlook by downside risks. And that may have implications for default rates.”

China has been hit by a series of disappointing economic figures, with the latest Economic data broadly misses expectations.

While Moody’s expects a slowdown soon, there may be some “pockets of resilience,” Diron said.

He acknowledged that “we see a slowdown from this year to next,” but added: “We see relatively robust growth and favorable conditions in markets like India and Indonesia.”

Indonesia in particular has the potential to realize the country’s “vast natural resources” and develop downstream sectors, by processing minerals along the value chain, Diron said.

The Southeast Asian nation possesses large natural deposits, including tin, nickel, cobalt and bauxite, some of which are important raw materials for the production of electric vehicles.

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