Fitch Ratings says that it sees global economic growth running at 2.3% in 2012 and 2.9% in 2013, a call that represents a modest downward revision from its previous estimates.
In its latest quarterly Global Economic Outlook, Fitch has marginally revised its global GDP forecasts down from 2.4% growth in 2012 and 3.0% in 2013. And, it says it sees growth of the major advanced economies remaining weak at 1.1% in 2012, accelerating to 1.8% in 2013.
“While the baseline remains a modest recovery, short-term risks to the global economy have eased over the past few months,” it says, noting that financial tensions in the eurozone have eased, meaning the probability of tail events, with severe global consequences, has declined.
However, downside risks do persist, it says. Fitch’s latest alternative scenario explores two such possibilities: a sharp increase in long yields and an oil price shock. In an oil price shock scenario, resulting in prices of US$150/barrel in 2012, this would lower global growth by 0.4 percentage points in both 2012 and 2013; while a 100 basis point permanent increase in U.S. and UK long yields would have smaller initial global effects, but its impact would increase over the medium term, it says.
Additionally, it cautions that progress on U.S. fiscal consolidation or global imbalances could unwind in a disorderly fashion. Conversely, in terms of upside risk, Fitch says that improvement in private sector balance sheets could generate stronger demand and improved financial conditions could boost confidence globally.
Fitch maintains that due to the still fragile recovery, monetary tightening is highly unlikely in the short term. Despite recent oil price increases, major central banks will maintain record low interest rates at least until end of 2012, it says.
Fitch says it expects the eurozone to have the weakest performance among major advanced economies. “Sizeable fiscal austerity measures and the more persistent effect of tighter credit conditions on the broader economy remain key obstacles to growth,” says Gergely Kiss, director in Fitch’s Sovereign team.
In contrast to the problems in Europe, the recovery in the US has gained momentum over past quarters, it says, noting that growth is supported by the stronger-than-expected improvement in labour market conditions and indicators pointing to strengthening business and household confidence. As a result, it has upgraded its 2012 US growth forecast to 2.2% from 1.8%, but it’s keeping the 2013 forecast unchanged at 2.6%. The report doesn’t include a specific forecast for Canada.