KUALA LUMPUR (Nov 11): Moody’s Investors Service has lowered its economic growth expectations for 2023, and said the global economy is on the verge of a downturn amid extraordinarily high levels of uncertainty amid persistent inflation, monetary policy tightening, fiscal challenges, geopolitical shifts and financial market volatility.

In its report titled “Global Macro Outlook 2023-24: Global economy faces a reckoning over inflation, geopolitics and policy trade-offs” released on Thursday (Nov 10), the firm said global growth will slow in 2023, and remain sluggish in 2024.

“Still, a period of relative stability could emerge by 2024 if governments and central banks manage to navigate their economies through the current challenges,” it said.

Moody’s said it expects real gross domestic product growth in the Group of 20 economies to decelerate to 1.3% in 2023, significantly lower than the previous estimate of 2.1%, and down from an estimated 2.5% growth this year.

It said declining economic activity in advanced economies, notably in Europe and North America, will drive the sharp moderation in 2023 growth.

In 2024, global economic activity will accelerate, but only at a below-trend 2.2% growth rate, it said.

The firm said that the decisive end to the decade-long era of low interest rates and quantitative easing had generated large financial losses in asset values around the world, raised dollar funding costs and widened credit spreads.

It said that so far, the adjustment to higher rates has come without a large systemic financial event with global implications, and its baseline forecasts assume that central banks will avoid a disorderly tightening of financial conditions.

Moody’s said the Russia-Ukraine conflict will remain the central geopolitical risk to the larger macroeconomic picture.

“While we assign a very low probability to the potential for the conflict to broaden beyond Ukraine’s borders, such an event would mark a significant escalation, creating further and severe downside economic risks.

“Geopolitical considerations will increasingly drive economic policies globally, as great-power relationships turn ever more confrontational," it said.