Downside risks to economic growth have risen in recent months, according to Fitch Ratings’ latest bi-monthly Global Economic Outlook report published on Monday.
The rating agency has revised its forecast for world growth in 2016 down to 2.4% from 2.6% in its previous outlook. The forecasts for 2017 and 2018 are unchanged.
Populist sentiment is gaining traction in many countries, Fitch says, which may lead to an increase in trade protectionism, an increase the risks to private investment. At the same time, the capacity of central banks to drive growth “appears to be diminishing,” Fitch says in a news release.
Fitch has also pared back its growth forecasts for Canada to 1.2% in 2016 and 2.0% in 2017 and 2018. Similarly, the rating agency has revised down its forecast for U.S. growth in 2016 to 1.4%.
“This year is likely to see the lowest annual growth rate for U.S. GDP since 2009 as oil sector adjustments, weak external demand and the earlier appreciation of the dollar take their toll on industrial demand,” says Brian Coulton, chief economist at Fitch.
Conversely, emerging market growth pressures, which have been the primary downside risk in recent years, have eased somewhat. “It is too soon to say the BRICs are back, but the macro picture in the big emerging markets is certainly steadying,” adds Coulton.
“Most importantly, China’s efforts to stabilize growth in the face of a sharp slowdown in exports and private-sector investment look to have gained traction,” Fitch says.
In the current climate, the U.S. Federal Reserve Board “is likely to be the only major central bank tightening monetary policy in the near term as it lays the groundwork for a December rate rise,” Fitch adds. The other major central banks are expected to maintain their ultra-supportive monetary policies.