Moody's Investors Service today retained India's growth forecast at 7.5 per cent for 2016 but revised upwards estimates for China to 6.6 per cent citing strong fiscal and monetary support.
In its latest assessment of the global economy, Moody's Investors Service said the outlook for emerging markets economies has stabilised but outlined the policy changes post the US presidential election in November as the most immediate downside risks to the global economic outlook.
Moody's now expects China to grow at the rate of 6.6 per cent and 6.3 per cent in 2016 and 2017, respectively as compared to the previous forecast of 6.3 per cent and 6.1 per cent, with the higher growth rate being driven by significant fiscal and monetary policy support," it said in a statement.
As regards India, it said: "Our growth expectations for India, Indonesia, Korea and Saudi Arabia are unchanged from our previous outlook publication in May."
In its May 'Global Macro Outlook 2016-17' Moody's had said that India's growth will pick up slightly, climbing to 7.5 per cent in 2016 and 2017, from 7.3 per cent in 2015.
The US-based agency said emerging markets have stabilised on account of the modest recovery in commodity prices, better capital flows and a better near-term outlook for growth in China.
Moody's said the modest upwards revision in China growth would have minimal impact on its forecasts for the rest of the world as imports to China continue to fall.
It, however, said that medium-term downside risks to China's growth outlook persist, especially if the reduced efficacy of policy support over time becomes apparent.
"Headwinds to emerging markets have moderated, driven by the economic stabilisation in China, the modest recovery in commodity prices, and the return of capital flows; however, we expect the US Federal Reserve to resume its interest rate tightening cycle at the end of this year," Moody's said.
A change in US policy stance that contributes to a weakening of the current global trade and security architecture could have a detrimental impact on global confidence and growth, and would prompt us to revise our forecasts, Moody's said.
"The political and geopolitical risks, including a rise in nationalist and protectionist policies, are among the downside risks to global growth. In this context, the most immediate risk is a potential renegotiation of global trade pacts and security alliances, after this year's US presidential election," Moody's added.
Moody's said that under the draft bill, public sector
banks will be brought under the ambit of the resolution framework.
By contrast, under existing laws, public sector bank resolution can only happen under the direction of the government.
Moody's does not expect this change to have an impact on its assumption of the level of systemic support for public sector banks, because the banks' core public sector character would remain unchanged.
The draft bill also provides for a significant delineation of regulatory powers between the Reserve Bank and the proposed Resolution Corporation.
"This situation will be particularly apparent with respect to some key supervisory powers over banks, including criteria for classifying banks into the various risk categories.
"Such a scenario would represent a change compared to the current structure, where the powers rest almost fully within India's central bank. Consequently, there could be some execution risk, as the system transitions to the new arrangement," it said.
The draft bill, it said, will have to go through multiple steps before becoming law, and hence may be subject to changes and delays.
