India will be the fastest-growing economy among G-20 countries clocking a 7.1 per cent growth in 2017, Moody's Investors Service said on Thursday.
The Indian economy had slowed in the fourth quarter of 2016 due to the withdrawal of 86 per cent of the currency in circulation - without an immediate replacement.
"India is forecast to have the fastest-growing economy among all G-20 countries with growth put at 7.1 per cent for 2017, down from a previous expectation of 7.5 per cent because of the effects of demonetisation," Moody's said.
With regard to global growth, Moody's said continuing cyclical recovery in global economic activity with growth in G-20 countries picking up modestly to 3 per cent in 2017 and 2018 from 2.6 per cent in 2016, but potential shifts in US policy add uncertainty to this forecast.
"We note unusually high uncertainty around our global forecasts due to the wide range of outcomes that could arise from significant shifts in US policy on a number of domestic and international issues, including trade and immigration," Moody's VP and Senior Analyst Madhavi Bokil said.
The systemic risks to this forecast may stem from shifts in US trade policies, risks to global financial markets and emerging market economies if US interest rates were to rise faster than anticipated and/or the US dollar were to appreciate sharply. Also there could be risks of a sudden and sharp deceleration in China and political and fragmentation risks in the EU and the euro area, Moody's said.
In the report titled 'Modest Acceleration in the Global Economy, but Shifting US Policies Inject Uncertainty', Moody's said there is a high risk of a significant protectionist shift in US trade policy and could inflict lasting damage to the global economy.
Regarding Asia, Moody's said China's economy stabilised around the official growth target of 6.7 per cent in 2016, but will likely continue to decelerate to 6.3 per cent and 6 per cent in 2017 and 2018.
Moody's expects that the US economy will get additional lift from a stimulative fiscal policy stance pushing growth above potential.
Accordingly, Moody's has revised its real GDP growth forecast to 2.4 per cent in 2017 and 2.5 per cent in 2018, from 2.2 per cent and 2.1 per cent, respectively.
Moody's forecast assumes the US Federal Reserve will raise the federal funds rate by 75-100 basis points in three to four rate hikes in 2017. "We expect the Fed to err on the side of caution and tolerate somewhat above-target inflation in the near term."