Global growth is slowing and becoming less well-balanced, while downside risks are rising, particularly for 2020, says Fitch Ratings in its new Global Economic Outlook (GEO).
“The world economy is still expanding at a rapid pace, but cracks are starting to appear in the global growth picture,” said Fitch Chief Economist, Brian Coulton
“Eurozone growth outturns have disappointed once again, world trade is decelerating and the China slowdown is now fact, not forecast,” added Coulton.
Growth dynamics within the three main economies have become more divergent, with US growth still rising on a year-on-year basis, while growth in the eurozone and China is falling.
A historically tight US labour market and the ongoing fiscal boost to growth from higher government spending will keep the Fed on a course for three more rate hikes in 2019 despite a softer external environment. US GDP growth remains on track to reach around 3% this year. While we expect growth to slow next year, the economy will still expand at an above-trend pace of 2.6%.
But downgrades to the eurozone growth outlook, which continue a pattern seen in the last few editions of the GEO, and stubbornly low core inflation now look likely to persuade the ECB to hold off from raising interest rates until 2020. We are no longer forecasting the ECB to raise rates in 2019. This will help provide further support to the US dollar, keeping pressure on emerging markets (EMs), where financing conditions have tightened significantly.
Our base case remains a soft landing for global growth in 2020 as US fiscal support fades. But downside risks – from a faster-than-expected tightening of global financial conditions as central bank liquidity shrinks, or an escalation in market fears about eurozone fragmentation – have increased. Notably, this year has shown the capacity for tightening global liquidity to adversely affect the growth outlook, particularly for EMs. Trade protectionism also remains a key downside risk despite some recent more positive news flow on the US/China trade war, with the announcement of fresh negotiations and a 90-day extension of the deadline before the next increase in US tariffs.
Fitch’s December 2018 GEO sees global growth forecasts unchanged for this year and next, with growth peaking in 2018 at 3.3% before moderating to 3.1% in 2019 and then falling below 3% in 2020. Forecasts for eurozone growth in 2018 and 2019 have been revised down to 1.9% and 1.7%, respectively (compared with 2% and 1.8% in the September GEO). EM growth forecasts for 2019 and 2020 have also been cut, partly reflecting tighter financial conditions in India, Indonesia and Turkey. Our forecasts for China have not changed in this edition of the GEO, but the slowdown we have been expecting for a while is now materialising.
Hello Martin,
Flitches report is obviously WAY behind the curve, there WILL NOT be a soft landing, current policies ENSURE it! Make no mistake, the global middle-class are being robbed blind by ALL world central banks working in unison with the BIS and US Federal Reserve, they ARE operating together in dark pools, and the government knows it!