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Moody's raises 2018 growth forecasts for US, UK, eurozone

Several advanced economies including the U.S., the U.K., the euro area and Japan will expand at a faster pace than initially estimated, pushing global economic growth higher in 2018, Moody's said in a new report.

Moody's raised real GDP growth forecasts for 11 G-20 economies for 2018 and nine for 2019. Collectively, the 20 economies were predicted to expand 3.4% this year and 3.2% next year, up from earlier estimates of 3.2% and 3.1%, respectively.

The U.S. economy was projected to grow 2.7% in 2018 and 2.3% in 2019, compared to earlier forecasts of 2.3% and 2.1%, respectively. Moody's cited stronger-than-expected momentum going into this year and additional fiscal stimulus from the recent congressional budget deal as reasons for the revisions.

"Stimulative policies at full employment can push the economy above potential in the short run," Moody's senior analyst Madhavi Bokil said of the U.S. economy. "But we are also watching the consequent rise in interest rates, which can crowd out private sector demand. We expect the economy to grow more slowly in 2019 as credit conditions naturally tighten."

Moody's revised up its growth forecasts for the euro area economy to 2.1% in 2018 and 1.8% in 2019, from prior views of 2.0% and 1.7%, respectively. It also raised its growth projection for the U.K. for this year to 1.3% from 1.0%, but lowered the forecast to 1.6% from 1.7% for 2019.

The Japanese economy was also seen to expand at a slightly faster rate than earlier estimated, according to Moody's, which expects real GDP growth of 1.3% in 2018 and 1.1% in 2019.

Headline and core inflation are set to increase globally, but would remain contained, Moody's said, with a gradual rise of inflation expected particularly in the U.S., euro area and Japan over the next two years.

"In contrast to 2017, we expect to see a gentle rise in inflation rates in a number of countries in the months ahead," the Moody's report said. "Resulting tighter monetary policy will somewhat moderate growth rates in many advanced economies in 2019, bringing them closer to long-term trend growth."

Moody's said its U.S. and global growth outlooks were unaffected by the recent financial market volatility. However, it warned of risks stemming from increased U.S. protectionist sentiment and uncertainty over the North American Free Trade Agreement.