The global economic outlook is dimming, but there’s no recession on the horizon, says Fitch Ratings in its latest forecast.
The rating agency said that “global growth prospects have deteriorated significantly” since its previous forecast in December 2018. As a result, it has cut its global growth forecasts to 2.8% from 3.1% for 2019, and again to 2.8% from 2.9% in 2020.
Fitch also cut its growth forecasts for 15 of the 20 countries it covers, including Canada, which it sees generating just 1.6% growth in 2019 and 1.7% in 2020.
The gloomier global outlook comes against the backdrop of a particularly sharp weakening in the Eurozone, signs of a slowdown in China and other emerging markets (EM), and a deterioration in global trade primarily due to the U.S.-China trade war and weaker demand in emerging markets.
Yet, despite the dimmer outlook, Fitch said it does not anticipate a global recession. Among other things, it noted that the U.S. economy is still growing above trend, that recent weakness in Europe is likely due to temporary factors and that China has eased monetary and fiscal policy to help kickstart growth.
“Moreover, there has been a sizeable shift in the global monetary policy environment in the last few months,” Fitch noted, adding that it now expects just one U.S. rate hike this year, instead of the three hikes it previously anticipated. The rating agency also said that Europe is unlikely to raise rates before the end of 2020, and that it expects the Bank of Canada to raise rates just once in 2019.
“This will take pressure off EM central banks to tighten policy and perpetuate an environment of low market interest rates,” Fitch said. “Easier global liquidity risks distorting the allocation of capital over the medium term but in the near term it will support the US housing sector and reduce pressure on corporate, sovereign and EM borrowers who have taken on sizeable additional debts in recent years.”