US rejig of trade pacts risky for global growth: Moody’s

Chennai, Aug 18 (IANS) One of the immediate downside risks for the global economic growth is the potential renegotiation of global trade pacts and security alliances after US' presidential elections in November, said credit rating agency Moody's Investors Service.

According to Moody's, such an event would make the export oriented Asian economies vulnerable to this risk.

In its latest report on the global economy, Moody's also said the outlook for the emerging economies has stabilised due to a combination of the modest recovery in commodity prices, better capital flows and a better near-term outlook for growth in China.

"The political and geopolitical risks, including a rise in nationalist and protectionist policies, are among the downside risks to global growth. In this context, the most immediate risk is a potential renegotiation of global trade pacts and security alliances, after this year's US presidential election," Moody's said.

Based on its macroeconomic forecasts, Moody's assume that the course of current economic policies and international agreements will be left intact after the next election.

"A protectionist stance that proposes renegotiating global trade alliances, including NAFTA and withdrawing from the Transpacific Trade Partnership, would be unambiguously harmful for potential global growth in the long run. Export-oriented Asian economies are particularly vulnerable to this risk," Moody's said.

In Europe, political risk could rise if populist anti-European Union parties gain support of countries like Netherlands, France and Germany, who are set to face important elections in 2017.

"Whether or not populist parties come to hold office over the next year or so, it is clear that the nationalist discourse injected by them will remain and potentially shape future policies in Europe," Moody's said.

According to Moody's, in the long run, this could have detrimental implications for the continued cohesiveness of the European Union, and in the extreme threaten its existence.

According to Moody's, the fragmentation of the European Union could also encourage protectionist tendencies in a number of other countries, and therefore seriously challenge, and ultimately reverse, the past few decades of increased globalisation. This in turn would thwart the long-term growth prospects of individual economies and slow the catch-up of less developed countries.