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.
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.
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.