The global economic recovery begun in mid-2009 appears to be gathering momentum, says Fitch Ratings.

In the latest edition of its quarterly economic outlook report, Fitch has revised its growth forecast for major advanced economies in 2010 up by 0.3% to 1.9%, with large upward revisions to the U.S. and Japan partially offset by marginally weaker growth forecasts for the euro area and the United Kingdom.

Global growth is expected to be stronger at 2.8%, supported by growth of over 7.5% (in aggregate) in Brazil, Russia, India and China.

The rating agency notes that GDP expanded by more than expected in the U.S., France, Japan and the UK in the fourth quarter of last year. For the advanced economies as a whole, activity increased 0.8%, up from 0.3% in the third quarter of 2009, it says. “The outperformance of GDP among the [major advanced economies] at the end of last year offers some reassurance that a turning point for the world economy was reached in mid-2009,” it adds.

“The driving forces behind the recovery have included the rebound in world trade, a slowdown in the pace of inventory draw-down and fiscal policy easing,” it says, noting that world trade volumes have now recovered nearly two-thirds of the losses witnessed after October 2008.

Inventories also made a positive contribution to fourth quarter GDP growth in the U.S., Japan, UK, France and Italy, it says, “while government spending has supported growth in many countries and tax cuts have mitigated the impact of higher private-sector saving rates”.

Fitch allows that these factors “are unlikely to prove a lasting source of growth”, but says that, “there have also been some encouraging signs that conditions may be starting to emerge that will support a return of modest but self-sustaining private-sector demand growth.” It points to the fact that non-residential investment has started to recover in the U.S., and labour markets have started to stabilize.

Fitch adds that it expects the expansion in activity in the developed economies to continue at a similar pace in 2011, despite the anticipated withdrawal of fiscal stimulus. “Private-sector investment is expected to stage a recovery in line with historical cyclical patterns and household saving ratios should start to flatten off as job market conditions stabilise and the impact of negative wealth effects fades,” it says, although it adds that household deleveraging will continue to weigh on growth.

IE