Fitch Ratings is cutting its forecasts for global GDP growth, and Canada is taking a hit too.
In its latest economic forecast, the rating agency has lowered its global call for 2024 by 0.2 percentage points to 1.9%, amid widespread downside revisions to forecasts for the major economic powers — including the U.S. (down 0.2 points to 0.3%), the eurozone (down 0.3 points to 1.1%) and China (down 0.2 points to 4.6%).
The downward revisions reflect the fact that “the deepening slump in China’s property market is casting a shadow over global growth prospects, just as monetary tightening increasingly weighs on the demand outlook in the U.S. and Europe,” Fitch said.
For Canada, Fitch also reduced its forecasts for this year and next, to 1.1% and 0.7%, respectively, noting that second quarter GDP was weaker than expected, partly due to temporary factors such as wildfires and strikes.
“Underlying growth momentum is weak as past tightening takes its toll on domestic demand,” it said. It expects the U.S. to fall into recession in the first half of 2024, which will further dampen the outlook for Canadian trade.
Against the weak economic backdrop, “we doubt that the [Bank of Canada] will need to raise its policy rate further from its current level of 5%,” the report said. “Nevertheless, with inflation set to remain above target through 2024, we think the [Bank of Canada] will not rush to cut rates, with the first cut coming only in April next year.”
As for the U.S. Federal Reserve Board, Fitch said it believes the central bank “is now close to reaching a peak on rates and we expect just one more 25-basis-point hike to 5.75%. But core inflation is still high — particularly in services — and we have pushed back the date of the first Fed rate cut to May 2024.”