Fitch Ratings remains pessimistic on the economic outlook for the world’s major advanced economies (the United Sates, Britain, Europe and Japan), despite better-than-expected GDP growth.

The rating agency has revised downward its GDP growth outlook for 2009 in a new report while revising unemployment and interest-rate projections upward. It sees just 1.4% in average GDP growth for 2008, rising to just 1.6% in 2009. It expexts inflation to average 3.5% this year, cooling to 2.6% next year.

Fitch points to a 40% rise in oil prices since its last quarterly outlook report as a big reason for the shifting outlook, saying the increase is “having the combined effect of reducing real incomes in oil‐consuming advanced economies and limiting the scope for monetary-policy easing to offset the impact of market‐driven credit-tightening on economic activity.”

The U.S. economy looks to have avoided recession in the first half, Fitch says, but the agency still sees this as a likely prospect for 2008. “The substantial negative forces weighing on consumer spending have become more pronounced in the last three months, and with the labour market weak, Fitch expects consumer retrenchment to take over from the housing market as the leading source of growth weakness in the next 18 months,” it explains. The firm expects the slow growth to linger into 2010.

Elsewhere, the rating agency suggests that Britain is among the most heavily exposed to tighter global credit conditions and the U.S. recession, “given high household debt levels, the large shares of the real estate and finance sectors in U.K. output and strong U.S. trade linkages.” Japanese growth is also likely to be weak this year as the consumer outlook worsens, Fitch says.

Finally, while the Euro area has shown more resilience, as the German economy has continued to surprise on the upside, “headwinds are blowing strongly elsewhere in the currency bloc, with both Spain and Italy slowing sharply and the French economy starting to exhibit all the signs of a housing‐ and consumer‐led downturn.”

For the world’s central banks, inflation has re‐emerged on the radar screen in the major economies, Fitch notes. “It is currently running at 16‐year highs in both the euro area and the U.K., and is likely to breach similar territory in the US in coming months as it heads above 5%.”

“Higher headline inflation largely reflects the surge in global commodity prices and, to the extent that these seem likely to level off, the rise may be temporary. But there are huge uncertainties about the prospects for commodity prices and central banks are fretting more and more loudly about the risk of ‘second round’ effects becoming embedded in ongoing inflationary pressures,” it says. “The extent to which they react with policy tightening depends on the perceived degree of downward pressure on core inflation from slowing GDP growth and the risk of rising inflation expectations.”

The European Central Bank has most to fear, Fitch suggests, as Euro area growth prospects have been less adversely affected by credit tightening and wage inflation has clearly been rising. It says the forthcoming slowdown means the ECB will likely remain on hold.

In the U.S., Fitch notes, the Federal Reserve “has become increasingly vocal about inflation risks,” so it no longer sees further rate cuts to below 2%. Yet Fitch maintains that the Fed is unlikely to start raising rates until early next year.

The Bank of Japan is also likely to take its time in adjusting rates upward, the rating agency predicts.

The next move by the Bank of England is still likely to be a rate cut, despite the rise in inflation, Fitch says.