On Tuesday, Moody’s Investor Service issued a report predicting that this year global growth will decelerate as persistent inflation and higher borrowing costs will cause an economic slowdown, primarily driven by declines in the advanced G20 economies, to include the US, UK, and Germany.

The ratings agency predicted that real GDP growth in the G20 nations would decline to 2.1% in 2023, and 2.2% in 2024, down from 2.7% in 2022.

The report said, “We expect very weak growth in key advanced economies in particular, including mild recessions in the US, UK, and Germany, and stagnant economic activity in France and Italy.”

The report judges the risks posed by inflation or financial contagion to be high, despite US lawmakers coming to an agreement on a deal to help the nation avoid a default. The agency warned, if there is weaker aggregate demand, it could force some central banks to raise rates even further.

The report went on, “We forecast economic growth rates around 1% in 2023 and 2024 for the US economy, significantly lower than the 2.1% recorded in 2022 and below trend growth. These forecasts incorporate a mild recession – a couple of quarters of sequential contraction that will increase the unemployment rate to around 5.0% – in the second half of 2023.”

It added, “Our growth expectations already incorporate a significant pullback in overall demand for credit from high interest rates, so we have not materially changed our forecasts because of the recent stress at US regional banks.”

Moody’s noted that in the case of Germany, manufacturing sector weakness, shortages of labor, elevated interest rates, and persistent and elevated inflation have all worsened the nation’s economic outlook.

Industrial production in Germany declined 3.4% in March, after growing 3.7% in January, and 2.1% in February. Moody’s said in the report, “While the automotive industry contributed the most to the decline, the deterioration was broad based, and consistent with the decline in new orders. April manufacturing PMI survey reveals continued contraction in orders.”

The ratings agency is still predicting the German economy will see 0% annual growth in 2023, and 1.2% annual growth in 2024.

At the same time, economic activity in the UK moderated, due to high inflationary pressures, with Moody’s predicting the UK economy will see a -0.1% contraction this year.

The report noted that so far in 2023, higher prices and tighter financing conditions due to higher interest rates has continued to stifle the economy. The report said, “As highlighted above, we expect BoE’s [Bank of England’s] policy rate to peak at 4.75% and for monetary policy to remain tight over the coming years, which will weigh on consumption and investment.”

Last week the International Monetary Fund announced that it no longer expects a recession in the UK this year, as its forecast sees the nation’s economic growth inching ahead of some of the country’s affluent peers on the global stage, including Germany.

However the country’s Prime Minister, Rishi Sunak, has said he believes the UK could enter a recession next year, as a persistent inflation drives interest rates above 5%.

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