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 rates.
"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% until 2015.
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