Fitch Ratings says that it expects the global economy to continue gaining momentum over the second half of 2013 and into next year, however its view on the major emerging market economies is dimming.
The rating agency published its latest global economic outlook today, indicating that it expects the global economy to strengthen gradually this year and through 2014-2015, “as the U.S. gathers steam and the Eurozone approaches a cyclical turning point.” Its latest forecasts for world GDP growth are 2.4% in 2013, 3.1% in 2014% and 3.2% in 2015.
For the major advanced economies, Fitch forecasts weak growth of just 0.9% in 2013, accelerating to 1.9% in 2014 and 2.0% in 2015. However, it has cut its 2013-2014 growth forecasts for all of the BRIC nations, and estimates that 2012-2013 will see some of the weakest BRICs’ growth since the Russian crisis in 1998 (second only to the aftermath of the global financial crisis in 2009).
“Several of the largest emerging markets are experiencing strains from spill-overs from advanced economies and China, difficult policy trade-offs, a declining impact from credit growth and structural bottlenecks. Therefore growth differentials will narrow between advanced economies and emerging markets over the forecast horizon” says Gergely Kiss, director in Fitch’s sovereign team.
Notwithstanding its concerns about emerging markets, growth for these countries will continue to far outstrip the developed economies. For the emerging markets overall, Fitch sees 4.8% growth in 2013, rising to 5.2% in 2014-2015.
For the U.S., Fitch says that the private sector’s positive growth momentum is supported by the housing market recovery, improving household balance sheets, strong corporate profitability, and loose monetary conditions. As a result, it sees GDP growth accelerating from 1.9% in 2013 to 2.8% in 2014 and 3% in 2015, although the threat of a fiscal drag, stemming from tax increases and spending cuts, remain a downside risk in the near term.
The Eurozone remained in recession in the first quarter, and it says that leading indicators for the second quarter are mixed. Nonetheless, Fitch expects a weak recovery to start in the second half, which gradually strengthens in 2014-2015 as gains in competitiveness bear fruit, fiscal consolidation eases, and credit channels are repaired. It forecasts GDP to contract by 0.6% in 2013, before growth of 0.9% in 2014 and 1.3% in 2015.
Fitch also says it expects the reflationary economic policy strategy in Japan to buoy growth in the short term, though its medium term success is less certain. It forecasts growth of 1.8% in 2013, before moderating to 1.5% in 2014 and 1.2% in 2015.
Loose monetary conditions are expected to persist over the forecast horizon, Fitch adds. “Despite recent market palpitations over the timing and impact of the eventual exit from loose monetary policy by the US Federal Reserve,” Fitch says it expects central bank policy “to be gradual and in line with domestic growth and inflation developments.” It expects the Fed to only start increasing interest rates in mid-2015, after tapering its quantitative easing policy in 2013-2014.
Other central banks will likely take it slower, it says. “Nevertheless, uncertainty over the exit from current unprecedented monetary policy settings is likely to generate bouts of market volatility,” it cautions.