Moody`s Analytics on Monday predicted the global economy to grow at 2.7 per cent in 2022 and slow to 2.3 per cent in 2023.
In its latest report, Moody`s Analytics said the global environment is more fragile as record high inflation in the US and Europe continues to gain momentum while growth decelerates.
Stagflation risks have risen worldwide, but a stagflationary environment would take months to be realised.
Business sentiment remains muted and is consistent with a global economy that is just avoiding recession, Moody`s Analytics said.
According to the report, the global economy is at a crossroads, as the nascent post-pandemic recovery has quickly morphed into a darker and more fragile environment.
Record-high inflation in the US and Europe from supply shortages and surging commodity prices following Russia`s invasion of Ukraine are weighing on the global expansion and are compounded by an aggressive monetary policy response.
At the same time, China`s economy is facing challenges on multiple fronts, including a cooling property market and a buildup of risks in the financial sector.
“As a result, global growth fell in the second quarter on an annualised basis for the first time since the depths of the virus outbreak in early 2020, driven by contractions in the US, the UK and China,” Moody`s Analytics said.
According to the report, the performance remains uneven among the world`s major economies — the US, China, Japan, India, and the five largest economies in Western Europe.
Outcomes will continue to diverge through 2023 due to differing trade and investment linkages to Russia and Ukraine, particularly in relation to energy products.
“Global real GDP (gross domestic product) is forecast at 2.7 per cent in 2022 in the Moody`s Analytics September baseline, down from 4.2 per cent in our January forecast. GDP for 2023 has also been revised lower to 2.3 per cent from 3.6 per cent,” Moody`s Analytics said.
“While we project that the global economy will grow in 2022, any policy missteps or additional risks would increase the threat of a global recession in the next 12 months above our current assessment of just over even odds. Downward revisions to 2022 growth projections have been broad-based across countries,” Moody`s Analytics warned.
While the higher food and energy prices benefit net commodity exporters in Latin America, gains will be more than offset by higher inflation and the consequent erosion of consumers` purchasing power.
As global recession risks rise, both developing and developed market economies have also seen their currencies depreciate against the US dollar in a flight to quality, which has meant higher import inflation, Moody`s Analytics said.