Moody's raises outlook for emerging markets in 2016, 2017

[NEW YORK] Moody's Investors Service revised its outlook on the world's largest emerging market economies upward for 2016 and 2017, the ratings agency announced on Wednesday, pegging growth for G20 emerging markets at 4.4 per cent this year and 5 per cent for 2017.

Analysts at Moody's said in a research note they expect growth in emerging markets to stabilise overall, but forecast increased growth for some countries and a turn lower for others.

Moody's revised upwards its macro outlook for Brazil, Russia and China. Turkey and South Africa were seen growing less than previously expected. "We're seeing a certain amount of stabilisation ... capital flows seem to be back in a fairly strong way and across regions," said Madhavi Bokil, Moody's vice-president and senior analyst and one of the authors of the report.

"Relative to earlier in the year, financial market volatility has come down, and in the case of emerging markets in general we're seeing some improvement."

Moody's expects Brazil to return to positive growth in 2017 after contracting 3.8 per cent in 2015 and as much as 4 per cent this year. Mr Bokil attributed the improvement to an increase in business and investor confidence in Brazil since interim President Michel Temer took office earlier this year.

Russia, whose economy shrank 3.7 per cent in 2015 and is expected to contract again this year, is seen growing up to 2 per cent in 2017 thanks to stronger oil prices and industrial production, Moody's report said.

China's GDP outlook was raised to 6.6 per cent in 2016 and 6.3 per cent in 2017.

The upward revisions stem largely from economic stabilization in China as well as a recovery in commodity prices and the return of capital flows to emerging markets, the report said.

The agency also noted the slower pace of the US Federal Reserve's interest rate tightening cycle in 2016. "Financial markets that were quite volatile earlier in the year have settled and some of the expectations of Fed rate tightening have been pushed back," Mr Bokil said. "That's allowed for some of the external pressures to come off." Moody's did note in its report, however, that it expects the Fed to resume its tightening cycle at the end of the year.

The most immediate downside risk to the global economic outlook, Moody's said, was the US presidential election in November.

REUTERS