Moody’s: Downturn in Stocks Could Effect ‘Real’ Economy Soon

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Moody’s is warning that the downturn in global stock markets could drag down world economies and China identified, in 2009, that overcapacity and zombie steel firms were one of its economy’s biggest threats.

Global Downturn in Stocks

A downturn in global financial markets this year could hit the real economy, as banks tighten credit standards and investors cut back spending, Moody’s investor service has warned.

Free Download: The February 2016 MMI Report

In a report on Thursday, SVP Marie Diron said downside risks to global growth have increased following a 9% drop in the Stoxx 600 index this year, a 19% fall in the Shanghai Composite and 5% fall in the S&P 500.

She predicts that the global economy will grow by 2.6% this year but said downside risks to that forecast are growing.

China’s Overcapacity

Industrial overcapacity in China has gotten much worse since 2009, with Beijing struggling to implement reforms and overcome the resistance of growth-obsessed local governments, a European business lobby said on Monday.

China’s central government has identified overcapacity and the closure of debt-ridden “zombie” firms as one of its key policy priorities for 2016, and it has already published action plans aimed at shutting 100 million-150 million metric tons of low-end steel capacity and 500 mmt of coal production.

 

Comment (1)

  1. Jeff

    The EU Chamber of Commerce is a little slow on the switch. You have been reporting their observation here on this site for better than 2 years. The true utilization rate for steel may well be below 50% since an accurate measurement of capacity is illusive in China due to the way they calculate it (wet finger in the air).

    Different this time around is the rapidity in which the EU, UK, and the US are responding with antidumping countermeasures.

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