Fitch Ratings on Monday announced widespread downward revisions to growth forecasts in its latest Global Economic Outlook.
The report from New York City-based credit rating agency now forecasts overall global growth at 2.5% in 2016, down by 0.4 percentage points from its previous forecast in December.
The biggest negative revisions are to emerging market commodity producers, such as Brazil, Russia and South Africa, according to the report.
For emerging markets, growth this year is now expected to come in at 4.0%, down from 4.4% in December, but Fitch as also lowered forecasts for developed economies.
The forecast for U.S. growth is now to 2.1%, down from 2.5%, and the forecast for Canada is downgraded to 1.4%, largely due tocontinued weakness in oil prices.
The revisions for both the advanced and emerging country outlooks represents a departure from previous trends. “This reflects the fact that external and energy sector shocks are now having a clearer negative impact on advanced economy growth than previously anticipated,” the Fitch report says.
Despite the widespread negative revisions, Fitch is not expecting a global recession.”With emerging markets at the epicentre of these shocks and now accounting for 40% of world GDP it is legitimate to ask whether the world will see, for more or less the first time in recent history, an emerging market led global recession. However, we believe several factors mitigate this risk,” says Brian Coulton, chief economist at Fitch, in a statement.
Among other things, Fitch report says that labour market conditions in many of the major advanced economies “look quite robust”, which, along with lower oil prices, “should help support consumer spending in rich countries and cushion the shock.”Additionally, the report says that domestic demand faces diminishing deleveraging pressure in advanced economies, and fiscal policy appears less restrictive in these countries than it has been in the last few years.
For Canada, Fitch report says the recent depreciation in the Canadian dollar has begun to spur exports, “which will make a strong growth contribution in 2016.”
The credit rating agency also expects the new federal government to pursue looser fiscal policy and increase public investment, with the Bank of Canada maintaining interest rates at 0.5%, and possibly lowering rates further, even if the Fed makes further rate hikes.