Fitch cuts growth forecasts but plays down recession fears

Globe-Global-World-Map-700x450.jpgRatings agency Fitch has downgraded its global growth forecast amid the slowdown in China and struggling price pressure for commodity exporters but says a recession is unlikely.

The ratings agency has forecast global GDP growth of 2.5 per cent in 2016, down from its latest December forecast of 2.9 per cent.

Fitch has cut the growth rate in developed economies to 1.7 per cent from 2.1 per cent, and emerging economies to 4.0 per cent from 4.4 per cent.

Russia and Brazil saw the sharpest cut from the US agency. It is now predicting a 1.5 per cent contraction for Russia from 0.5 per cent growth, while Brazil is expected to see a 3.5 per cent contraction from a 2.5 per cent contraction previously.

Fitch chief economist Brian Coulton says: “The investment slowdown in China and sharp expenditure compression in major commodity-producing countries continue to reverberate around the world economy. As the volume of housebuilding in China has levelled off, the impact on resource exporters across the globe has been felt profoundly.

“The collapse in commodity prices has presented commodity exporters in the emerging world with a huge income shock. This has uncovered hitherto disguised macroeconomic vulnerabilities in Brazil and forced severe expenditure compression across the commodity-producing world, as pressures mount to close fiscal and current account deficits.”

However, it is not all bleak for Fitch. It says although “the breadth of the revisions” for global growth is “notable” it still leaves the growth outlook “considerably above global recession territory”.

This will be mostly led by increasing consumer spending due to the fall of energy prices.

“With emerging markets at the epicentre of these shocks and now accounting for 40 per cent of world GDP it is legitimate to ask whether the world will see, for more or less the first time in recent history, an emerging market led global recession. However, we believe several factors mitigate this risk,” says Coulton.

He says: “Firstly, labour market conditions in many of the major advanced economies look quite robust. Along with the benefits of lower oil prices on real incomes, this should help support consumer spending in rich countries and cushion the shock.

“Advanced economies look to be beyond the worst of the private sector deleveraging forces that held back domestic demand growth in the years following the global financial crisis. Furthermore, the impact of fiscal policy on growth in the advanced economies is currently less restrictive than it has been in the last few years.”