Moody's: Improving global growth outlook for 2017 appears sustainable as risks abate

The improving outlook for global growth in 2017 appears to be sustainable as some of the biggest risks to advanced economies have subsided and emerging markets maintain their expansion, says Moody's Investors Service in a new report.

Moody's expects G20 economies, which account for 78% of the global economy, to collectively grow at an annual rate of 3.1% in 2017 and 2018, compared with growth of 2.6% in 2016. The US will rebound after a soft first quarter and its economy will expand around 2.4% this year, putting it among the fastest growing advanced economies.

"Overall, global growth is looking increasingly sustainable with economic data surprising to the upside in a number of emerging market countries," said Madhavi Bokil, a Vice President and Senior Analyst at Moody's. "The current momentum should continue, barring any negative surprises."

The risk to global trade and economic growth from the introduction of protectionist policies in the US appears to have receded for now and there has been a significant softening of the US administration's stance on what should be considered free and fair trade.

In the US, an overall increase in housing and business capital investment suggest that the first quarter slowdown will be temporary. Personal consumption, which grew 0.3% in the first quarter, will improve as the labor market continues to strengthen. Business sentiment, financial conditions and other economic indicators have all remained strong since the start of the year.

"Economic momentum has undoubtedly picked up, especially in emerging market countries," said Elena Duggar, an Associate Managing Director at Moody's. "But strength is likely to be held down by changing demographics, muted investment, low productivity growth and stagnant real wage growth."

Moreover, the lack of fiscal buffers and limited scope for effective monetary accommodation in the event of shocks remain a concern even as growth strengthens.