Global economic growth is still slated to accelerate slightly despite growing concerns about the rise of political populism and the prospect of increased protectionism, according to a new report from Fitch Ratings Inc.
The credit-rating agency’s near-term outlook for growth in the advanced countries has improved amid heightened political uncertainties and is now expected to increase to 1.9% in 2017 from 1.6% in 2016 and edging up to 2% in 2018. The U.S. will lead the acceleration in growth, with growth remaining stable in Japan and the eurozone, Fitch says.
“While there is genuine upside to the near-term outlook — stemming primarily from a faster than expected easing of U.S. fiscal policy and the possibility of animal spirits sparking a more rapid U.S. private investment recovery — downside risks also loom large,” says Brian Coulton, chief economist at Fitch, in a statement.
For example, Fitch warns that protectionist trade polices by the new U.S. administration could lead to retaliation, increased global currency volatility and weaker business confidence. Longer term, it could also curb global demand. Yet, these developments remain uncertain.
“The linkages from political uncertainty to economic growth are never straightforward, but for now we are looking at a synchronized improvement in the macro outlook across the advanced countries,” Coulton says.
The improvement in growth prospects and expansionary fiscal policy should lead to tighter monetary policy, Fitch adds. As a result, the credit-rating agency now expects the U.S. Federal Reserve Board to raise interest rates three times this year, up from its previous forecast of two hikes, and by a total of seven times over 2017 and 2018.
Finally, emerging-market growth is expected to rise to 4.7% this year, up from just more than 4% in 2015 and 2016. “This reflects the return to modest positive growth rates in Russia and Brazil,” the Fitch report says, adding that this is tempered by downward revisions to Mexico, Turkey and Brazil, along with a slightly weaker outlook for China.
“Following the success of the stimulus measures rolled out from late 2015 in supporting growth, the Chinese authorities have recently shifted focus toward trying to start to address the problem of rapidly rising leverage. The cuts in official interest rates that we previously expected in 2017 no longer seem likely,” Fitch says. “This change of emphasis has come a little earlier than expected and is likely to result in some sequential slowing of growth later this year.”
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