US President Donald Trump and China's President Xi Jinping shake hands ahead of their bilateral meeting during the G-20 summit in Osaka, Japan on Saturday - Photo: AP.

JAKARTA (TheInsiderStories) – Moody’s Investor Service revealed the agreement reached between the United States (US) and China to restart trade talks does not fundamentally change the credit rating agency’s outlook for the global economy.

World’ two largest economies have agreed to resume trade talks at the high-level meeting at the sidelines Group of 20 summits in Osaka, Japan, on Saturday (06/29). US president Donald Trump announced, he would hold off imposing an additional US$300 billion in tariffs after face to face meeting with Chinese president Xi Jinping.

“The agreement reached between President Trump and President Xi at the G20 summit to restart trade talks does not fundamentally change Moody’s outlook for the global economy,” Michael Taylor, Managing Director, Moody’s Investors Service said in a written statement on Monday (01/7).

Although the agreement will likely partially relieve recent negative sentiment in the financial markets and support near-term growth, it stops short of removing existing tariffs, Taylor opined.

“We, therefore, maintain our baseline view that the tariffs implemented to date will shave 0.1 percentage point off US growth and about 0.2 percentage point off China’s growth this year through direct trade channels,” he said.

These forecasts do not take into account the indirect effects of the tariffs, which are likely to increase their overall impact, especially in case of a more significant hit to sentiment or rise in risk aversion in the event that persistent policy uncertainty affects investment than we currently assume, the agency said.

However, Moody’s expect China will continue to ease policy in an effort to offset the impact of the existing tariffs and that major central banks will maintain their bias towards the more accommodative policy.

While few details of the agreement have been disclosed so far, the truce on further tariff escalation appears to indicate that both sides have a desire to make progress in resolving their current disputes, underpinned by the US’ relaxation of the restrictions it had placed on Huawei (unrated).

However, Moody’s sees significant obstacles remain to obtain a long-term agreement, due to the lack of an agreed mechanism for dispute settlement, and the considerable differences that exist between the two sides on core issues such as technology, intellectual property, industrial policies, and the creation of a level playing field for foreign firms operating in China.

As such, according to Moody’s the talks could still suffer further setbacks and the risk of further tariffs has not been removed yet.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com