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G20 Economies Growth Forecast Revised Downward to 2.8 Percent

graph-downThe gross domestic product (GDP) growth in the Group of Twenty (G20) economies has been revised downward for next year, according to a report from Moody's Investors Services released Friday.

The report noted that the forecast for 2016 GDP growth in the G20 economies, an international forum for the governments and central bank governors from 20 major economies, has been revised downward from 3.1 percent to 2.8 percent.

This revision is mostly attributed to the impact of a "more marked slowdown now forecast in China and more prolonged negative effects of low commodity prices on G20 producers than earlier expected."

Moody's also revised China's GDP growth forecast downward 2016 to 6.3 percent from 6.5 percent.

"Recently published economic indicators show that China's slowdown in exports and investment has continued into Q3 2015," the report said. "In addition, signs that employment growth is weakening point to a more marked and broadly-based deceleration in the Chinese economy than previously expected."

Ongoing policy support from the Chinese government is likely to only partly offset the underlying slowdown in the Chinese economy, according to the rating agency.

"Slower growth in China makes a significant rebound in commodity prices in the near term unlikely. A more prolonged period of low commodity prices will lead to muted export revenues and investment for commodity-exporting G20 economies." said Marie Diron, a SVP at Moody's.

The slight downward revision to the US forecast in 2016 is mostly due to negative effects of the stronger dollar and lower oil prices than previously expected. Moody's also notes that while the broad-based equity price falls could have a negative impact on investor and consumer sentiment, they will not have a direct significant impact on economic activity in most countries, including in China.

Yesterday, the U.S. Bureau of Economic Analysis' second estimate for Q2 reported that the nation's real gross domestic product (GDP) exceeded expectations by expanding at an annual rate of 3.7 percent—an increase from 2.3 percent growth reported in the BEA's advance estimate for Q2 last month.

Real GDP growth in Q2 is way up from a paltry 0.6 percent annual growth rate in Q1 and at 3.7 percent is now way ahead of forecasts for the remainder of 2015. But when all economic factors are considered, is the news all good?

According to the BEA, the increase in real GDP estimate for Q2 reflects positive contributions from personal consumption expenditures (PCEs), exports, state and local government spending, nonresidential fixed investment, and private inventory investment. Imports, which are subtracted in the calculation of GDP, increased in Q2, according to the BEA.

"The GDP release today is very positive but most importantly because all components of the GDP showed strong improvement," Trulia Chief Economist Selma Hepp said. "Also, the growth in all components suggest that we may be looking at a strong third quarter as well. In terms of housing, the economic improvement may actually put more pressure on affordability because we are still not seeing improvements in inventories. While job growth is generally strong, the wage growth is still lagging. We will see more wage pressures going forward which will help potential buyers’ purchasing power, but that process will be slow."

About Author: Xhevrije West

Xhevrije West is a writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.
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