U.S. protectionism is now “materially affecting what remains a strong global growth outlook,” leading it to downgrade its global gross domestic product (GDP) forecast for 2019, the New York-based credit rating agency says in a news release.
Escalating trade tensions have trimmed 0.2 percentage points from Fitch’s 2019 China growth forecast to 6.1%, and 0.1 percentage points from the 2019 global forecast to 3.1%.
“The trade war is now a reality,” says Brian Coulton, Fitch chief economist, in a statement.. “The recently announced imposition of U.S. tariffs on a further US$200 billion of imports from China will have a material impact on global growth and, even though we have now included the 25% tariff shock in our global economic outlook baseline, the downside risks to our global growth forecasts have also increased.”
For 2018, Fitch is expecting global growth to come in at 3.3%, up from 3.2% in 2017. However, growth is “becoming less balanced and less synchronised,” Fitch says.
For Canada, the rating agency expects the economy to grow by 2.1% in 2018. “Consumer spending growth has moderated since 2017 and is no longer significantly outpacing overall GDP growth,” the Fitch report states. Its forecast for 2019 is for overall GDP growth to slow to 1.6%, on the assumption that consumer spending growth will continue to decelerate.
Notwithstanding the expected deceleration, Fitch expects the Bank of Canada to raise rates by another 25 basis points before the end of this year.
On a global basis, Fitch expects a shift to quantitative tightening (QT) next year, even as growth slows.
“With the four quantitative easing (QE) central banks (U.S. Federal Reserve., European Central Bank, Bank of England and Bank of Japan) having purchased over US$1 trillion of assets per annum on average since 2009, the prospect of an outright decline in central bank liquidity is likely to have significant ramifications. These could include upward pressures on global bond yields — as the compression of term premiums that followed QE is unwound — and a ratchet up in financial market volatility,” Coulton says.