Moody’s: Trade dispute global economic risk

The world's economies are so interconnected that trade tensions between China and the US could reverberate in emerging-market nations next year, according to analysts from Moody's Investor Service.

Moody's one of the Big Three US credit-rating agencies along with Standard & Poor's and Fitch, revealed its 2019 outlook for emerging-market (EM) economies on Tuesday in New York.

Moody's still considers China an emerging-market economy mainly because its per-capita GDP is still at EM levels despite the nation becoming the second-largest economy in the world behind the US, said Managing Director Atsi Sheth.

The credit agency anticipates slower global growth as higher interest rates, continued Sino-American trade tensions and geopolitical tensions pose challenges for emerging markets next year.

Sheth said that because over the last 40 years nations have increased trade with each other, US-China trade tensions may have a spillover effect on other economies and threaten to disrupt what has been a carefully constructed global supply chain.

"If you have China exporting less to the US because of tariffs, China will probably be importing less from the rest of the world," she said.

Trade can also have an impact on sentiment, said Sheth.

"Sentiment is a big driver of where people chose to invest," she said. "The idea that the two biggest economies in the world are going to be trading less with each other has got to affect how corporations decide to invest."

Moody's said global growth is likely to slip in 2019. It expects China's growth to come in at 6 percent next year, down from an estimated 6.7 percent in 2018. Moody's predicts US growth of 2.3 percent next year compared to an expected 2.6 percent this year.

"If the two largest economies in the world grow slower, everyone else grows slower," said Sheth.

Anne Van Praagh, managing director, said Chinese efforts to reform and deleverage State-owned enterprises "will probably hit the pause button in the face of slower growth in 2019."

Even with slower growth, Moody's sees a positive environment for Chinese consumers to pay back loans.

Van Praagh noted that many EMs have increased borrowing significantly in the last 10 years in a low interest-rate environment. EMs increased debt over the last decade from 145 percent to 211 percent of GDP.

Rates are now rising and even though most EMs hold a strong balance sheet, Van Praagh said credit stress could emerge for nations with macroeconomic imbalances that are also reliant on international financing.

Moody's expects Argentina and Turkey to experience a recession in 2019. It also predicts that Brazil and South Africa will have weak economic performances.

Contact the writer at paulwelitzkin@chinadailyusa.com