Dec 4 - Link to Fitch Ratings' Report: Global Economic OutlookDec 4 - Fitch Ratings says that the contraction of the eurozone and Japanese
economy as well as weaker than expected growth in large emerging countries such
as Brazil and India in Q312 highlight the underlying weakness and downside risks
facing the global economy. In its latest quarterly Global Economic Outlook (GEO)
Fitch forecasts global growth of 2.0% in 2012, 2.4% in 2013 and 2.9% in 2014
(based on market exchange rates), down from 2.1%, 2.6% and 3.0% respectively in
the previous GEO.
The agency forecasts growth of just 0.9% for major advanced economies (MAE) in
2012, followed by only a modest and gradual acceleration to 1.2% in 2013 and
1.9% in 2014.
"Global growth outturns are continuing to undershoot expectations and risk
remain skewed to the downside. Although forceful ECB intervention has eased tail
risks in the eurozone, it has so far failed to arrest economic stagnation, the
looming 'fiscal cliff' could tip the US economy into recession, and China faces
a challenging transition towards a more balanced growth model," says Gergely
Kiss, Director in Fitch's Sovereign team.
The growth of the US economy accelerated in Q312, but the near-term outlook is
complicated by the effect of Hurricane Sandy and the looming 'fiscal cliff'.
Fitch's baseline assumption is that the 'fiscal cliff' will be avoided, but a
fiscal tightening of 1.5% of GDP will materialize. Fitch has maintained its 2013
and 2014 US GDP growth forecasts at 2.3% and 2.8%, respectively, as balance
sheet adjustment is progressing in the private sector and accommodative
financial conditions can counterbalance current headwinds.
The eurozone entered a recession in Q312, which will likely deepen in the coming
quarters. Fitch forecasts GDP to contract by 0.5% in 2012, stagnation (-0.1%) in
2013 before a modest recovery of 1.2% growth in 2014. With economic and
financial rebalancing proving longer and harder than anticipated the agency
lowered its 2013-14 forecast compared to September's GEO by 0.4% and 0.2%
respectively. Private sector confidence remains weak, unemployment in the region
as a whole is already at record high and heading towards 12%, while financing
conditions are persistently tight in the periphery and core countries' growth
momentum is slowing.
Emerging markets face growing challenges. The combination of weak import demand
of MAEs and domestic vulnerabilities has led to a soft patch in Brazil and India
this year. In China, Fitch's base case is that a modest monetary and
public-investment stimulus will raise growth in Q412 and support output
expansion of about 8% in 2013 and 7.5% in 2014, though risks surrounding the
medium-term transition towards a more balanced growth model are substantial.
In this edition of the GEO Fitch has analysed the global repercussions of a
hypothetical hard landing of the Chinese economy in which GDP growth slows to 5%
in 2013 and 6.5% in 2014. As China's role in the global economy has grown
rapidly over the past decade, such a shock would slow global growth
significantly, to 1.7% and 2.1% in 2013 and 2014, respectively. The largest hit
would be in South-East Asia owing to close trade links, while commodity
exporters would also suffer from a steep fall in oil and other commodity prices.
MAEs would face a more persistent impact from the shock as their domestic
policies are heavily constrained in responding to any adverse exogenous shocks.
Fitch emphasises a hard landing is a scenario and not its base case for China's
Ultra-loose monetary conditions are set to endure in MAEs. Fitch expects 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 ECB's possible rate cut and
lagged effects of previous non-standard measures are unlikely to offset negative
economic trends sufficiently to improve the near-term growth outlook.
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.
Additional information is available on www.fitchratings.com.
Applicable Criteria and Related Research:
Macro Prudential Risk Monitor - December
Sovereign Data Comparator - September 2012 - Amended