Another report this week indicates slower economic growth in 2016. Sadly, this report indicates sub-par growth for 2017 as well. Moody’s now sees increased risks to the global growth story for the 2016 to 2017.

Much of the data in the report may seem known: the slowdown in China, lower commodity prices and tighter financing conditions. This was a quarterly view published by Moody’s, and the downside risks to the Moody’s forecasts of the G 20 gross domestic product (GDP) growth of 2.6% in 2016 and 2.9% in 2017 have increased since its last G-20 outlook in November.

24/7 Wall St. would point out a more complex issue brought up by Moody’s. It specifically noted that policymakers in some G-20 nations are faced with a dilemma of having limited fiscal and monetary policy space that could otherwise help to increase growth or mitigate these risks.

In China, Moody’s forecasts GDP growth of 6.3% in 2016 and 6.1% in 2017. That compares to 6.9% GDP growth in 2015. Its view is that authorities will use some of their available policy space to support the economy and foster a very gradual economic slowdown (economic-speak for a “soft landing”).

In the United States, Moody’s has a forecast of 2.3% GDP growth in 2016 and 2.5% GDP growth in 2017. This remains broadly unchanged from November, but Moody’s did say that the recent correction in financial asset prices poses some downside risks to the U.S. forecast. There was a caveat: if tighter financing conditions weigh more significantly on investment than currently assumed. Moody’s also said that the Federal Reserve will continue to raise interest rates gradually. Its assumption is that the federal funds rate will end up around 1.75% by the end of 2017.

Moody’s see’s China’s slowdown being concentrated in heavy industry sectors that are significant importers, so the slowdown’s impact on the rest of the world will be sharper than implied by China’s GDP growth above 6%.

Moody’s has revised down its GDP growth forecasts for Brazil, Russia, Saudi Arabia and South Africa. Lower oil prices and government debt dynamics led the revisions for Russia and Saudi Arabia. Moody’s forecasts that GDP will shrink again in 2016 by 3.0% in Brazil and by 2.5% in Russia, and growth is expected to fall to close to zero in South Africa, with Saudi Arabian growth being the lowest in decades in Saudi Arabia at 1.5%.

For Europe and Japan, Moody’s said:

Lower prices for oil and other commodities have provided a boost to economy activity in the euro area. But these gains are tempered by persistently high debt in some sectors and uncertainty over the success of multiple rounds of quantitative easing. Moody’s GDP growth forecast for the region is unchanged at 1.5% in both 2016 and 2017. In Japan, GDP growth is expected to be below 1% both this year and in 2017, despite the boost from lower commodity prices and the weaker yen. The Bank of Japan’s 2% inflation target will remain elusive, despite negative policy interest rates.

The official Moody’s statement said:

We expect global growth to rise only very modestly in 2016-17. The negative impact of commodity producers’ adjustment to persistently lower prices, a marked slowdown in China’s imports and tighter financing conditions for some emerging markets will outweigh positive factors, such as accommodative monetary policy in Europe, Japan and in the US. Where government budgets are hit by lower commodity prices and depreciating currencies fuel inflation, room to mitigate the downside risks is limited. In Europe and Japan, elevated government debt continues to constrain fiscal policy while the efficiency of multiple rounds of quantitative easing is already being tested.

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