Sept 19 (The following statement was released by the rating agency)
Fitch Ratings says in its newly published Global Economic Outlook (GEO) that world economic
growth will strengthen in H213 and 2014, driven by a cyclical pick up in major advanced
economies (MAE), while growth stutters in emerging markets (EM). Its latest forecasts for world
GDP growth are revised down to 2.3% in 2013 (from 2.4% in the June GEO), 2.9% in
2014% (from 3.1%) and 3.2% in 2015 (unchanged), weighted at market exchange
"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.
The end of the 18-month eurozone recession in Q213 supports Fitch's longstanding
view that growth will recover gradually in the second half of this year. Fitch
forecasts MAE GDP growth to increase to 1.8% in 2014 and 2.0% in 2015 from 0.9%
in 2013 (practically unchanged from the June GEO).
Although growth in EM will continue to comfortably outstrip that in MAEs, we
expect the growth differential to narrow between the two over the forecast
horizon. Fitch has again cut its growth forecasts for all four of the BRICs. It
expects growth in China to slow to 7.0% in 2014 (7.5% previously), from 7.5% in
2013; while 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.
The US economy is expanding at a moderate pace. We forecast real GDP growth of
1.6% in 2013 (down from 1.9% in June), due to data revisions and mixed Q313
indicators. We expect 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. However, a renewed fiscal
squeeze or political stand-off over the debt ceiling and rising interest rates
represent downside risks.
The eurozone delivered a positive surprise with GDP growth of 0.3% qoq in Q213,
with the improvement broadly based across member states. A subdued recovery will
follow as gains in competitiveness and rebalancing bear fruit, fiscal
consolidation eases and financing conditions normalise. Fitch forecasts GDP
growth of negative 0.4% in 2013 (negative 0.6% in June), positive 0.9% in 2014
and positive 1.3% in 2015 (both unchanged). Unemployment will remain above 12%
In the UK, Fitch has revised up GDP growth to 1.4% in 2013 (from 0.8% in June)
and 2.2% in 2014 and 2015 (1.8% and 2% in June, respectively), to reflect
stronger-than-expected H113 data and vibrant recent surveys, which indicate
broadly based acceleration of growth. Nevertheless, growth is likely to remain
modest by historical standards over the medium term due to fiscal consolidation,
stretched private sector balance sheets and the still fragile outlook in the
eurozone, the UK's main trading partner.
Fitch maintains its expectations that 'Abenomics', the reflationary economic
policy strategy in Japan, will buoy growth in the short term, though its
medium-term success is less certain. 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.
In this GEO's alternative scenario, we explore the global growth impact of an
additional 100bps rise (relative to mid-September level) in long-term interest
rates in MAEs, excluding Japan, and 200bp in most EMs reflecting a jump in the
risk premium. The simulation results indicate world GDP growth could be 0.3pp
weaker in 2014 and 2015, a cumulated impact of 60 bps. The US and UK are the
most exposed among MAE due to the large role played by capital markets, with a
cumulated impact of 140 and 80 bps, respectively. In EMs, the risk premium
component would be the most relevant, presenting a monetary policy dilemma for
those with liberalised capital markets including Brazil and Russia, while the
impact would be more subdued in China and India.
The full report, entitled "Global Economic Outlook", is available at
www.fitchratings.com. To complement the release of the GEO, 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