World economy will continue to decelerate, and China will not help

The world economy will continue to decelerate in the near future, as Marie Diron, Head of Moody’s Sovereign and Sub-sovereign Risk Group, stated in an interview with CNBC. According to her, the economic slowdown is related to three main factors: persistent high interest rates, tensions in the financial sector, and the slowing growth in China.

Ms. Diron notes that, even though central banks in various countries have managed to create a “disinflationary trend” by raising rates, the inflation risks remain high.

Moody’s does not expect a quick recovery in the growth of the Chinese economy. These expectations are supported by the PMI (leading indicator of the GDP dynamics) of China’s manufacturing sector, which has remained below 50 points for the fifth month in a row (borderline between business activity growth and decline).

In August, the economic sentiment indicator (ESI) in the euro zone dropped to 93.3 points, the lowest since November 2020. 100 points is the average value over 2000–2022: values above this level indicate an increase in the business activity, while values below it indicate a decrease. The indicator is calculated based on survey results of companies in the industrial sector, service sector, retail, construction sector, and consumers.

The ESI in Europe’s largest economies is increasingly going negative: in France, the indicator dropped to 91.4 points in August; in Germany, it reached 88.6 points. The business sentiment improved in Spain: the index value increased to 102.4 points in August, as well as in Poland where it increased to 95.5 points, compared to 94.3 points in July.

At the same time, Moody’s is observing relatively steady growth and favorable environment in India and Indonesia.