Dec 6 (The following statement was released by the rating agency)
Fitch Ratings says in its latest Global Economic
Outlook (GEO) that world growth will accelerate in 2014 and 2015 driven by a
more robust recovery in major advanced economies (MAE), while emerging market
(EM) growth rates will improve only modestly. Our latest forecasts for world GDP
growth, weighted at market exchange rates, are 2.3% in 2013, firming to 2.9% in
2014 and 3.2% in 2015 (unchanged from the September GEO).
"Although latest trends support our base case that a stronger global expansion
is gradually taking hold, several risks lie ahead, including the impact of Fed
tapering, EM growth stresses, fresh setbacks in the eurozone and the risk of
deflation," says Gergely Kiss, Director in Fitch's Sovereign team.
3Q13 outturns contained some positive growth surprises in MAEs. The UK (0.8%
qoq) and US (0.7% qoq) registered their strongest growth this year and, although
eurozone growth slowed (0.1% qoq), cyclical conditions have continued to improve
in the periphery.
Fitch forecast real GDP growth in the US to strengthen from 1.7% in 2013 to 2.6%
in 2014 and 3.0% in 2015, underpinned by the housing market, rising employment
and strong corporate profitability. We forecast the unemployment rate to decline
to 6.9% in 2014 and 6.5% in 2015 from 7.5% in 2013. The main downside risks to
growth are a renewed fiscal squeeze or dent in confidence from brinkmanship over
the budget and debt ceiling, global shocks or a sharp rise in long-term US
Treasury bond yields.
The agency expects the Fed to start 'tapering' its USD85bn monthly asset
purchases sometime between December 2013 and March 2014, depending on economic
data. The exact timing is not critical for the growth forecasts. We do not
expect the first increase in the Fed's short-term policy interest rate until
mid-2015, contingent on a more vigorous recovery and further decline in the
unemployment rate to at least 6.5%.
Underlying inflationary pressures have declined markedly over the past quarter
in most advanced countries. In the eurozone, the broad-based fall in inflation
motivated the ECB's unexpected rate cut in November. The low inflation
environment should make it easier for the major central banks to manage
expectations and prioritise growth considerations in designing their exits from
current ultra-loose monetary policy settings. Nevertheless, the timing and
impact of the process remain uncertain, and tighter and more volatile global
monetary conditions are a key risk for many EMs, especially those that are
dependent on capital inflows.
In the eurozone, 3Q13 growth of just 0.1% qoq highlights the fragility of the
recovery following 0.3% qoq growth in 2Q13, which had ended a six-quarter
recession. Growth in Germany and France, the two largest economies, slowed
sharply, while the cyclical position of Spain and Italy has continued to
gradually improve. Spain has recorded its first positive growth rate since 1Q11,
albeit only 0.1% qoq.
Following a contraction of 0.4% in 2013, Fitch forecasts eurozone GDP to grow by
0.9% in 2014 and accelerate to 1.3% in 2015 due to a more positive contribution
from domestic demand components, supported by the declining drag from fiscal
consolidation in most member states, better financing conditions (partly due to
the ECB's 25 bps rate cut) and a gradual improvement in private sector balance
The UK economy maintained its strong momentum in 3Q13 prompting Fitch to
marginally revise up GDP growth to 2.3% in 2014 and 2015, while the forecast of
1.4% in 2013 remains unchanged. However, fiscal consolidation and the limited
scope to deplete savings and increase household indebtedness will constrain
growth over the medium term.
In Japan, reflationary economic policy has provided a short-term stimulus,
although its medium-term success is less certain. Fitch does not expect the
consumption tax hike scheduled for April 2014 to undo the recovery. We forecast
growth of 1.8% in 2013, before moderating to 1.5% in 2014 and 1.2% in 2015.
Fitch expects EM growth to improve only modestly from 4.6% in 2013 to 4.8% in
2014 and 5% in 2015. Although it will continue to comfortably exceed MAE growth,
the differential between the two groups will decline in 2014-15 to its lowest
level since 2002. To varying extents, major EM economies face headwinds from
tighter global funding conditions, lower non-energy commodity prices, and
idiosyncratic structural weaknesses including persistent political risks.
Fitch's Chinese GDP forecast of 7% growth for 2014 and 2015 is based on the
assumption that the current policy debate, following the recent Party 3rd
Plenum, results in a renewed commitment to structural reform and rebalancing.
Growth will remain broadly stable in Brazil, 2.5% in 2013 and 2014 and 2.8% in
2015. In India and Russia, growth is expected to accelerate from the 2013
cyclical trough of 4.8% and 1.6%, respectively, to 5.8% and 6.8% in India and
2.2% and 2.8% in Russia during 2014 and 2015.
In this GEO's alternative scenario, amid criticisms of Germany's current account
surplus, we analyse the impact of more expansionary policy proxied by a 3%
increase in consumption starting from 3Q13. The results show that the German
economy would grow 0.5pp faster in 2013 and 2014 (a cumulative 1pp higher GDP by
2014). Half of the increase in consumption would spill into imports, resulting
in 1pp lower current account surplus. Germany's small open neighbours,
Netherlands, Belgium, Austria would benefit the most, with a cumulative boost to
GDP in the range of 0.4-0.7pp. The larger eurozone members, France, Italy and
Spain, as well as smaller periphery countries, would see a lower impact, not
exceeding a cumulative 0.3pp. The effect on growth and current accounts outside
the EU would be minor, only visible in Turkey and Russia.
The GEO is available at www.fitchratings.com or by clicking the link above. To
complement its release, Fitch has also published a datasheet containing the
agency's latest macroeconomic forecasts by country and region.
Link to Fitch Ratings' Report: Global Economic Outlook - Recovery Taking Hold
but Risks Still Ahead