Rich nation recovery may come along with adjustment in emerging markets

Stronger growth in advanced economies is likely to be associated with further economic adjustment in some emerging markets, Moody's Investors Service said in a report Tuesday. Advanced economies now appear to have reached "a genuine turning point," said the international credit rating company, as more and more evidence show a stronger growth trajectory in the United States and Britain, as well as a gradual healing likely in the euro area. The U.S., Britain and the euro area's GDP grew at 2.7, 2.8 and 0.5 percent year-on-year respectively in the fourth quarter of 2013, data showed. Due to the economic recovery, the U.S. Fed started to taper its quantitative easing policy from December. The Bank of England, however, is reckoned to raise the benchmark interest rate next year, according to market consensus. In the short run, capital flow adjustments will continue to pose challenges in the emerging markets, though in the medium term, the emerging world would see a gradual strengthening in economic activity, said Moody's in its report titled "Global Macro Outlook 2014-15: Growing Pains." Moody's continues to expect a gradual acceleration in economic activity in G20 advanced economies, with real GDP growth of around 2.3 percent in 2014, followed by around 2.5 percent in 2015. This is somewhat stronger than its previous forecast last November. In G20 emerging economies, Moody's forecasts a 5 and 5.5 percent GDP growth over the two years, little changed from November, notwithstanding further weakness in some emerging markets. Colin Ellis, associate managing director at Moody's said, "In the near term, stronger growth in advanced economies is likely to be associated with further painful adjustments in some emerging markets, as investors rebalance their portfolios." "The magnitude of risks around the central economic outlook remains relatively low compared with some of the substantial uncertainties seen in recent years. Large global risks such as the euro area debt crisis and U.S. fiscal deadlock have significantly receded," the report added.