Fitch Ratings has trimmed its global economic outlook, noting that the recent recovery in financial market conditions has not yet been matched by the real economy.
The rating agency says the fourth quarter saw the weakest quarterly GDP growth in both the eurozone and the United States since the 2009 recession, despite the fact that some major stock markets are near historic peaks. And, it is now forecasting global growth of 2.2% in 2013, and 2.8% in 2014; which is down from its previous forecasts of 2.4% and 2.9%, respectively.
For the US, Fitch has revised down its forecast for growth in 2013 to 1.9% from 2.3% due to the drag from the weak fourth quarter and the impact of the fiscal situation. Its 2014 forecast is unchanged at 2.8%. It says the unexpectedly weak fourth quarter results are “… mainly due to temporary effects, such as the sharp downturn in federal spending and fall in inventories. However, improvements in the labour and housing markets provide a foundation for more robust recovery.”
In Europe, Fitch expects a slow if uneven recovery to take root from mid-2013 supported by an easing in the pace of fiscal austerity and financial stress. However, elevated debt burdens, structural rigidities and high unemployment will constrain the pace of the recovery and pose downside risks, it warns. Fitch has revised down its forecast for both 2013 and 2014 and now expects GDP to contract by 0.5% in 2013, followed by 1.0% growth in 2014, while unemployment will remain above 12% until 2014.
Overall, Fitch says that it sees growth of just 1.0% for major advanced economies (MAEs) in 2013, followed by only a modest and gradual acceleration to 1.9% in 2014. It expects that emerging markets will continue to outpace the MAEs, although several face significant growth and rebalancing challenges, it says.
It still expects China to avoid a hard landing, and maintains a 8% GDP forecast for 2013, followed by 7.5% in 2014. For Brazil and India, Fitch expects growth will accelerate, but it has revised down its 2013 growth forecasts to 3% and 6%, respectively. Russia’s growth is forecast to slow to 3.2% in 2013, before picking up to 3.7% in 2014.
“The global economy should benefit from receding tail risks related to the US fiscal cliff, eurozone break-up and a China hard landing; and the gradual progress with private sector rebalancing in various MAEs, supported by ultra-loose monetary policy,” says Gergely Kiss, director in Fitch’s sovereign team. Nevertheless, it cautions that weak business and consumer confidence, high debt burdens and on-going fiscal consolidation in many countries will weigh on the recovery. It also expects the major central banks to maintain record low interest rates throughout 2013, and beyond 2014 in the US.
Fitch says it views the risk of a destabilizing currency war as moderate, and it considers the recent exchange rate movements of major global currencies as broadly consistent with macroeconomic fundamentals, it notes.