Fitch Ratings has trimmed its forecast for the global economy over the next year or so, as it sees growth in emerging markets weaken.
Its latest economic outlook, Fitch says that it has cut its forecast for world GDP growth to 2.3% in 2013 (from 2.4%), and to 2.9% in 2014 (from 3.1%). But, it still expects global growth to strengthen in the second half of 2013 and into 2014, it says, driven by a cyclical pick up in the major advanced economies (MAE). Its outlook for 2015 is unchanged at 3.2%.
The rating agency says that the end of the 18-month long recession in Europe in the second quarter of this year supports its view that growth will recover gradually in the second half. Fitch forecasts GDP growth in the MAEs to increase to 1.8% in 2014 and 2.0% in 2015 from 0.9% in 2013.
And, it says that, while growth in emerging markets (EMs) will continue to come in well ahead of the advanced economies, it expects the differential to narrow. Fitch has cut its growth forecasts for all four of the BRICs. It now expects growth in China to slow to 7.0% in 2014 (from its previous forecast of 7.5%); and growth in India is forecast at just 4.8% this year and 5.8% in 2014.
“Higher interest rates and less buoyant capital inflows will complicate policy trade-offs in many EMs, adding to growth strains from domestic structural bottlenecks, declining returns on investment and China’s rebalancing,” it says.
Fitch also says that it sees the US economy expanding at a moderate pace. It is forecasting real GDP growth of 1.6% in 2013 (down from 1.9% in its previous forecast), due to data revisions and mixed third quarter indicators. However, it expects growth to strengthen to 2.6% in 2014, and 3.0% in 2015, “underpinned by the housing market recovery, improved household balance sheets, rising employment and strong corporate profitability.”
For the U.S., a renewed fiscal squeeze, or political stand-off over the debt ceiling, and rising interest rates, represent downside risks, it cautions.
It also sees a subdued recovery in Europe, “as gains in competitiveness and rebalancing bear fruit, fiscal consolidation eases and financing conditions normalise.” For 2013 overall, it sees eurozone growth at negative 0.4%, rising to positive 0.9% in 2014, and further gaining momentum to 1.3% growth in 2015. However, it warns that unemployment will remain above 12% until 2015.
For Japan, Fitch maintains its expectations that the reflationary economic policy strategy will buoy growth in the short term, though its medium-term success is less certain. It says that growth could reach 1.8% in 2013 “as fiscal and monetary stimulus provides an initial boost to confidence, before moderating to 1.5% in 2014 and 1.2% in 2015 as the impetus fades.”
“Forward guidance of major central banks reinforces Fitch’s view that the short-term policy rates of the US Fed, ECB, Bank of England and BoJ will remain low into 2015,” says Gergely Kiss, director in Fitch’s sovereign team.
“However, the marked rise in long-term yields and risk premiums on some asset classes since May 2013 indicates that the exit from exceptionally loose monetary conditions is likely to generate bouts of volatility, despite enhanced central bank communication and an improving economic outlook. In particular, tighter global funding conditions will add to headwinds facing EMs, particularly those dependent on capital inflows,” he adds.