The global economic recovery is looking weaker due to gloomier prospects for emerging markets, says Fitch Ratings in its latest forecast.
The rating agency’s global growth forecast has weakened since its December estimates, declining by 0.2 percentage points for 2015, due entirely to revisions to its outlook for emerging markets. Its forecast for 2016 is unchanged.
Fitch now estimates that world GDP growth will come in 2.7% in 2015 and 3.0% 2016, up from 2.5% in 2014, driven by the continued recovery of the major advanced economies (MAE). It expects that growth will increase this year in all three of the largest advanced economies (the U.S., the eurozone and Japan) for the first time since 2010. However, it says that emerging markets (EM) will continue to slow, due to recessions in Russia and Brazil, and a structural adjustment in China.
For the U.S., Fitch maintains its forecast of GDP growth of 3.1% in 2015 and 3% in 2016, up from 2.4% in 2014. “Private consumption will remain a key growth driver, supported by lower oil prices, higher household disposable income and a strengthening labour market, while export performance will be constrained by the appreciation of the [US dollar],” it says.
In the eurozone, it says that the steep drop in oil prices, the launch of quantitative easing (QE) by the European Central Bank (ECB), the depreciation of the Euro, and improving confidence, support its forecast of a gradually strengthening recovery to 1.4% in 2015 and 1.7% in 2016, up from 0.9% last year. This forecast represents an upward revision of 0.3 percentage points for 2015, and 0.2 for 2016, since its December forecast. Nevertheless, Fitch says that eurozone growth “will remain modest” compared with other major advanced economies; and, it notes that the effectiveness of QE is uncertain, and “it remains to be seen whether a robust, self-sustaining recovery takes root.”
Emerging markets are experiencing a general slowdown and even recession in some key countries, Fitch notes. It is now forecasting EM GDP growth will slow to 3.6% in 2015, before edging up again to 4.2% in 2016. It forecasts Russia to enter a deep recession in 2015, and says Brazil has been in recession since mid-2014 and is forecast to contract by 0.4% in 2015. China’s gradual slowdown is structural, it says, and is maintaining its growth forecasts at 6.8% in 2015 and 6.5% in 2016.
India is the only BRIC country where growth will accelerate over the next couple of years, Fitch says. It sees 8% growth in 2015, and 8.3% in 2016, based on updated national accounts data.
Fitch forecasts inflation in the MAEs at just 0.3% in 2015, due to both the steep fall in oil prices and subdued underlying inflation amidst strengthening recoveries and a fast reduction of labour market slack.
The rating agency expects the U.S. Federal Reserve Board to start raising interest rates in mid-2015 and to follow a gradual tightening path, leading to an average policy interest rate of 1.6% in 2016. It says that the ECB and the Bank of Japan will keep interest rates at the lower bound at least until the end of 2016 and continue their QE programs. “Divergent monetary policies in MAEs add to risks of financial market volatility and EM policy mistakes and adverse growth shocks,” it notes.