* Global economic growth will be at historically low levels in 2017
* Credit conditions will remain uneven despite growth stabilizing
* Heightened political uncertainty likely to affect economic and credit outcomes.
Global economic growth will be at historically low levels in 2017, although it will stabilise, according to a recent report by leading credit rating agency Moody’s.
The agency added that stabilising growth and low interest rates will cast a shadow over the global credit outlook.
Moreover, rising political risks, a weak trade recovery and concerns over the efficacy of monetary policy are also spelling a credit conditions doom in the next year.
Global credit scene uneven
“Global credit conditions will remain uneven in 2017, despite a stabilization of growth worldwide,” says Anne Van Praagh, Moody’s Managing Director – Global Strategy and Research.
Moody’s forecasts that G20 global growth will be around 3.0 per cent in 2017 versus an estimated 2.6 per cent in 2016, as advanced economies continue to exhibit steady growth and a number of emerging markets recover from recent slumps.
Rahul Ghosh, Vice President – Senior Credit Officer at Moody’s, says that heightened political uncertainty stemming from a busy election schedule in Europe, the start of the UK’s formal withdrawal from the EU, and likely changes in policy direction in the wake of the US presidential vote are also likely to affect economic and credit outcomes.
“Volatility in credit spreads and exchange rates because of political risk may affect the ability of some issuers to borrow or refinance their debt,” says Ghosh.
Although “low for longer” rates will support borrowing and refinancing conditions, their negative side effects are becoming more visible, the report finds.
Borrowing and refinancing
Moody’s expects borrowing and refinancing costs to remain supportive of credit conditions in the coming 12 months, given only gradual interest rate normalisation in the US and the continued ultra-loose monetary policy in most other major advanced economies.
However, low long-term rates are leading to rapid debt build-ups, as well as increases in underfunding of defined benefits pension plans, leading to credit quality deterioration.
Global climate change efforts will also have impacts on credit availability and credit quality in 2017. Decarbonisation initiatives could have material credit implications for a number of high-emitting industrial sectors, as well as sovereigns and regional and local governments.
Consequences of Trump win
But analyst at the agency fear that the outcome of the US presidential elections has added a significant degree of uncertainty in respect to the incoming US administration’s policy towards the Paris Agreement and in ways other countries might react if the US were to seek to withdraw from the agreement.
The President-elect Donald Trump had said during his campaign that he will cancel the historic Paris Agreement, which came into force on November 4. He has already stated that he believes global warming is a hoax.
Trump has also said in the past that he will scrap all environmental commitments and roll back federal climate change and renewable energy policy.