Moody’s G20 economic growth forecast is lower due to rising inflation and higher fuel prices
Prasannkumar 
Moody’s Investors Service has lowered its economic growth forecasts for the 20 largest economies in the world as the Russia-Ukraine conflict continues. This is despite mounting inflationary pressures and rising energy costs.
Moody’s predicts that the real gross domestic product of the Group of 20 economies will grow by 2.5% in 2022, which is 6 percentage points less than its May estimate of 3.1% growth.
The forecaster projects a 2.1% increase in growth next year, compared to its earlier projection of 2.9%.
Moody’s predicts that G20 advanced economies will grow by 2.1% in 2022, and 1.1% in 2023. Meanwhile, projections for G20 emerging markets countries are at 3.3% and 3.8%, respectively.
Madhavi Bokil (a senior vice president at Moody’s), stated that “global monetary and financial conditions would remain quite restrictive through 2023.”
Before loosening their tight monetary policy, central banks will need to prove that high inflation is not a threat. A sharp and disinflationary slowdown of economic growth will resolve the current global economic challenges.
The International Monetary Fund stated in July that it expects advanced economies to grow 2.5% this year, as opposed to an earlier estimate of 3.3 percent, and after increasing 5.2 percent in 2021.
Global inflation is expected to average 8.3% this year. This includes 6.6 percent in advanced economies, and 9.5% across emerging markets and developing economies.
Moody’s revision is largely reflective of the Russian military offensive in Ukraine. Although the agency doesn’t expect the conflict will spread beyond Ukraine, it does believe that “such an event could mark a significant escalate.”
The US is the largest economy in the world, and the four-decade-old high inflation has caused central banks to raise interest rates.
Moody’s stated that it would be difficult for central banks “to navigate to an equilibrium wherein inflation falls but economic activity doesn’t slip into a deep recession.”
The economic outlook is also being affected by the sharp rise in energy prices and a slowdown in China’s economy.
China’s Covid Zero policy has impeded global supply chains and crimped growth.
The second quarter saw the slowest growth of the second-largest economy in the world, due to the renewed Covid-19 epidemics and frequent lockdowns within major urban areas.
“Global monetary and financial conditions are expected to remain restrictive throughout next year,” Ms. Bokil stated.
“The fed funds rate is currently at the estimated neutral rate and is expected to remain restrictive until 2023.”
There are still upside risks to inflation for most major central banks. “Keeping monetary policy relatively tight will help ensure their credibility in pursuing their policy objectives,” she stated.
There are several key factors that will impact the strength of the economy in the remaining months of the year and 2023.
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