Fitch forecasts global growth slowdown

The major advanced economies will see growth slow to 1.3% in 2011 and remain weak at 1.2% in 2012, followed by only a modest acceleration to 1.9% in 2013, forecasts Fitch Ratings.

The rating agency has revised down its GDP forecasts over the entire forecast horizon to 2013. The agency forecasts global growth, based on market exchange rates, at 2.4% for 2012 and 3.0% in 2013, compared with 2.7% and 3.1% previously.

“Fitch expects growth in the eurozone to weaken further to just 0.4% in 2012 owing to increased fiscal austerity measures and deteriorating financial market conditions feeding into tighter credit conditions for the broader economy,” says Gergely Kiss, director in Fitch’s sovereign team.

Mildly negative quarterly growth rates are likely over the next quarters in the eurozone and, among its four largest members, Fitch expects only Italian GDP to contract over 2012 as a whole, by 0.5%. “However, the outright contraction of the eurozone economy over 2012 is now a one-in-three probability,” added Kiss.

It also predicts that the recovery in the United States will remain lacklustre in the short run with stronger growth momentum expected from the second half of 2012 onwards, weighed down by the continued drag from the housing market as well as fiscal tightening equivalent to around 1% of GDP.

On the upside, Fitch expects the economic growth of BRIC countries will remain robust over the forecast horizon, at 6.3% in 2012 and 6.6% in 2013, well above global growth rates. Nevertheless, in line with the economic cycle of the advanced economies, China and Russia will slow in the coming years. Brazil and India have already experienced a sharp slowdown this year and are expected to regain some of the lost momentum by 2013, it says.

Additionally, Fitch says downside risks dominate. In particular, financial tensions may intensify further in the eurozone, and progress on U.S. fiscal consolidation or global imbalances could unwind in a disorderly fashion. “Therefore, the probability of unfavourable outcomes is high and the risk of tail events, with severe consequences, has increased over the last months. Conversely, improvement in private sector balance sheets could generate stronger demand and a swift resolution of financial stress could boost confidence globally,” it says.