Moody's: Euro-area crisis still poses greatest risk to global outlook

The global economic recovery is at risk of faltering due to the euro-zone debt crisis, Moody's Investors Service Inc. said in its latest macro-economic risk report.

The rating company said global economic growth in 2012 will be materially lower than in 2011 and 2010, as emerging market economies are now expected to grow less than previously expected.

One of the main risks for global growth, Moody's said, stems from a deeper than expected recession in the euro area, caused, among other factors, by a deeper credit contraction.

Also, the risk of a sudden and sharp fiscal tightening in the U.S. in 2013, the so-called “fiscal cliff,” is adding to global growth risks.

Other factors, Moody's said, are a possible “hard landing,” an abrupt slowdown of major emerging market economies such as India, China, Brazil, coupled with a possible oil-price shock resulting from geopolitical risks.

For advanced economies, Moody's said Europe is likely to experience a mild recession in 2012, while the U.S. will have a relatively robust growth.

“In our view, fiscal consolidation efforts, weak consumer and business confidence, banking and household sector deleveraging, persistently high unemployment levels, and real-estate market weakness will continue to constrain growth in advanced economies,” said Elena Duggar, Moody's Group Credit Officer for Sovereign Risk.

Growth forecasts for large emerging market economies have been revised down, Moody' said, as the consequences of advanced economies' weakness and volatile capital flows are suppressing growth potential.

The new report is entitled “Update to the Global Macro-Risk Outlook 2012-2013: Euro Area Debt Crisis Continues to Pose the Greatest Risk.”

Moody's Subscribers can access the report via this link:

http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_145035