China’s slowdown and other emerging-market woes present big threats to the global economy.
Another major challenge is policy makers worldwide can’t do that much to protect against economic shocks, Moody’s Investors Service warned on Tuesday.
The main risks to the global economic outlook would stem from a bigger-than-expected fallout from the Chinese slowdown or from tighter financing conditions in other emerging markets, but the “direct effects on the global economy” would “likely be limited,” Moody’s said.
“However, advanced economies would be unable to do much to shore up global growth, given policymakers’ limited room for manoeuvre on fiscal and monetary policy and the high leverage we’re seeing in a number of sectors and countries,” said Marie Diron, a London-based senior vice president for credit policy at Moody’s, in a news release.
Diron cautioned that authorities worldwide “lack the large fiscal and conventional monetary policy buffers to protect their economies from potential shocks.”
Other analysts have previously warned about the Federal Reserve and other central banks being short on ammo for the next economic crisis, given that interest rates are already ultra-low and government debt levels are high. Those warnings have come as the Fed considers raising rates by year’s end, though they still would be low.