Fitch says global economy lags recovery
Global rating agency Fitch says that the recent recovery in financial market conditions has not been matched by the real economy, so far. Q412 saw the weakest quarterly GDP growth in the eurozone and the US since the 2009 recession, while spreads on risky assets have tightened and some major stock markets are near historic peaks. In its latest quarterly Global Economic Outlook (GEO), Fitch forecasts global growth of 2.2% in 2013 and 2.8% in 2014 (based on market exchange rates), down from 2.4% and 2.9% in the previous GEO.
The agency forecasts growth of just 1.0% for major advanced economies (MAE) in 2013, followed by only a modest and gradual acceleration to 1.9% in 2014.
In the US, the unexpectedly weak GDP outturn in Q412 was 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. Fitch has revised down its forecast for growth in 2013 to 1.9% from 2.3% due to the negative base effect from Q412 and the impact of the sequester, while the 2014 forecast of 2.8% is unchanged.
The eurozone recession deepened in Q412, with a 0.6% qoq contraction, despite the marked reduction in financial tension in the periphery. Core countries, including Germany, also suffered falls in output. Fitch expects a slow if uneven recovery to take root from mid2013 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. 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.
Emerging markets continue to outpace MAEs, although several face significant growth and rebalancing challenges. Recent data has confirmed Fitch's view that China will avoid a hard landing. The agency maintains its 8% GDP forecast for 2013, followed by 7.5% in 2014, broadly in line with non-inflationary trend growth. In Brazil and India, growth will accelerate from 2012 cyclical troughs, but Fitch has revised down 2013 growth forecasts since the previous GEO to 3% and 6%, respectively. Russia's growth is forecast to slow to 3.2% in 2013 (its second weakest in 15 years) before picking up to 3.7% in 2014. Fitch expects average MAE inflation to be below 2% in 2013 and 2014 and for major central banks to maintain record low interest rates throughout 2013 and, in line with the Fed's guidance, beyond 2014 in the US.