Fitch: Trade war carries risks, hurts prospects
The Sino-US trade war is weighing on investment prospects and has sharply increased downside risks for world economic growth, Fitch Ratings says in a new Global Economic Outlook (GEO).
“Even though our base case assumes that further US tariffs on China are avoided, our world growth forecast for 2020 has been lowered,” said Fitch chief economist Brian Coulton. “Increased uncertainty about trade is already making firms more cautious on capital expenditure.”
Deteriorating prospects for business investment, lingering weakness in consumer spending growth in China and a softer growth outlook for other emerging markets have culminated in more bearish forecasts for the world economy.
Global GDP growth is expected to fall to 2.8% this year, unchanged from the March 2019 GEO, from 3.2% in 2018, according to Fitch.
Global economic growth in 2020 has been revised down to 2.7% from 2.8% in the last GEO, with cuts to both China (to 6.0% from 6.1%) and the US (to 1.8% from 1.9%), according to Fitch Ratings.
“These baseline forecasts are predicated on the assumption that recently threatened US tariffs on the remaining US$300 billion (9.41 trillion baht) of imports from China are avoided,” Fitch said in the GEO. “In the event that these tariffs are to be implemented soon at a rate of 25% — and China retaliates — our scenario analysis suggests that world GDP could be reduced by 0.4 percentage points by 2020. China and US GDPs would be 0.8 and 0.5 percentage points lower than in the baseline forecast, respectively.”
The grim outlook overshadows better-than-expected GDP performance in the US, the euro zone and China in the first quarter and robust labour markets supporting consumer spending in the advanced economies.
More accommodative global monetary conditions will only provide a partial offset, according to Fitch.
After raising interest rates four times in 2018, the US Federal Reserve is expected to leave rates on hold in 2019, while the European Central Bank looks increasingly likely to restart net asset purchases this year.
“Central bank responses will not fully compensate for the impact of rising trade uncertainties on investment spending and the adverse supply-side impact of tariff hikes and trade restrictions,” Mr Coulton said.
Incoming data since the last GEO signal a forthcoming slowdown in business investment in the US, while manufacturing investment has slowed sharply in China.
While the euro zone looks likely to avoid recession, the bloc’s economic growth outlook remains weak, weighed by the slump in global manufacturing and trade, Fitch said, adding that declining trade is also dampening prospects for other emerging markets, where trade concerns are further impeding on the benefits of looser global monetary conditions.