Moody's raised its projections of US real GDP growth to 2.7% in 2018 and 2.3% in 2019, from a prior forecast of 2.3% and 2.1%, respectively. These revisions account for stronger than expected momentum going into 2018 and additional fiscal stimulus from the February 2018 congressional budget deal. The recent financial market selloff does not alter Moody's US and global growth outlook.
"Stimulative policies at full employment can push the economy above potential in the short run," says Madhavi Bokil, a Moody's senior analyst. "But we are also watching the consequent rise in interest rates, which can crowd out private sector demand. We expect the economy to grow more slowly in 2019 as credit conditions naturally tighten."
G20 economies will collectively grow 3.4% in 2018 and 3.2% in 2019, up from prior forecasts of 3.2% and 3.1%, respectively, Moody's says. Moody's revised real GDP growth forecasts upwards for the US, Japan, Germany, France, UK, South Korea, Russia, Saudi Arabia, South Africa and Turkey for 2018. Notably, the euro area is exhibiting the best economic performance since the 2012 sovereign debt crisis.
Stronger inflationary pressures will lead to a steady convergence of the monetary policy outlooks of global central banks over the next two to three years. The current "goldilocks" period of synchronized upward growth momentum, low inflation, low interest rates, steadily rising asset prices and historically low volatility will gradually wane. "The recent return to financial market volatility is likely here to stay", says Elena Duggar, Associate Managing Director at Moody's.
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