March 15 (The following statement was released by the rating agency)
Fitch Ratings says that the recent recovery in
financial market conditions has not been matched by the real economy, so far.
Q412 saw the weakest quarterly GDP growth in the eurozone and the US since the
2009 recession, while spreads on risky assets have tightened and some major
stock markets are near historic peaks. In its latest quarterly Global Economic
Outlook (GEO), Fitch forecasts global growth of 2.2% in 2013 and 2.8% in 2014
(based on market exchange rates), down from 2.4% and 2.9% in the previous GEO.
The agency forecasts growth of just 1.0% for major advanced economies (MAE) in
2013, followed by only a modest and gradual acceleration to 1.9% in 2014.
"The global economy should benefit from receding tail risks related to the US
fiscal cliff, eurozone break-up and a China hard landing; and the gradual
progress with private sector rebalancing in various MAEs, supported by
ultra-loose monetary policy," says Gergely Kiss, Director in Fitch's Sovereign
team. Nevertheless, weak business and consumer confidence, high debt burdens and
on-going fiscal consolidation in many countries will weigh on the recovery.
In the US, the unexpectedly weak GDP outturn in Q412 was mainly due to temporary
effects, such as the sharp downturn in federal spending and fall in inventories.
However, improvements in the labour and housing markets provide a foundation for
more robust recovery. Fitch has revised down its forecast for growth in 2013 to
1.9% from 2.3% due to the negative base effect from Q412 and the impact of the
sequester, while the 2014 forecast of 2.8% is unchanged.
The eurozone recession deepened in Q412, with a 0.6% qoq contraction, despite
the marked reduction in financial tension in the periphery. Core countries,
including Germany, also suffered falls in output. Fitch expects a slow if uneven
recovery to take root from mid-2013 supported by an easing in the pace of fiscal
austerity and financial stress. However, elevated debt burdens, structural
rigidities and high unemployment will constrain the pace of the recovery and
pose downside risks. Fitch has revised down its forecast for both 2013 and 2014
and now expects GDP to contract by 0.5% in 2013, followed by 1.0% growth in
2014, while unemployment will remain above 12% until 2014.
Fitch is more optimistic about the Japanese economy in the short term due to the
boost from 'Abenomics', the new reflationary policy strategy. Monetary easing
guided by the new inflation target, fiscal stimulus enacted in the supplementary
budget and the significant depreciation of the yen will boost GDP growth to 1.9%
in 2013. Ultimately, the success of the new monetary policy regime will depend
on its effect on the yen, inflation expectations and bond yields.
Emerging markets continue to outpace MAEs, although several face significant
growth and rebalancing challenges. Recent data has confirmed Fitch's view that
China will avoid a hard landing. The agency maintains its 8% GDP forecast for
2013, followed by 7.5% in 2014, broadly in line with non-inflationary trend
growth. In Brazil and India, growth will accelerate from 2012 cyclical troughs,
but Fitch has revised down 2013 growth forecasts since the previous GEO to 3%
and 6%, respectively. Russia's growth is forecast to slow to 3.2% in 2013 (its
second weakest in 15 years) before picking up to 3.7% in 2014.
In this edition of the GEO, Fitch analysed the impact of exchange rate movements
on growth. Fitch views the risk of a destabilising so-called currency war as
moderate and considers the recent exchange rate movements of major global
currencies as broadly consistent with macroeconomic fundamentals. The report
illustrates the potential impact of sudden shifts in exchange rates and
estimates that a 10% appreciation of a country's real exchange rate would reduce
GDP in the range of 0.5%-2% for MAEs, depending mainly on the openness of the
economy. Nominal exchange rate changes would typically have less of an impact
due to some pass-through to inflation.
Fitch expects average MAE inflation to be below 2% in 2013 and 2014 and for
major central banks to maintain record low interest rates throughout 2013 and,
in line with the Fed's guidance, beyond 2014 in the US.
The full report, entitled "Global Economic Outlook", is available at
To complement the release of the GEO, Fitch has also published a datasheet
containing the agency's latest macroeconomic forecasts by country and region.