As the year comes to an end, you can expect to see more and more 2017 forecasts. Fitch Ratings is joining in on that trend. Much of the report is focused on sovereign credit ratings, but the reality is that this is a boost to growth expectations for the United States in 2017, with a slightly slower growth called for in China.

Fitch expects global gross domestic product (GDP) growth to increase to 2.9% in 2017 from a 2.5% forecast for 2016. The key forces are a pickup in the United States and a cyclical recovery in some of the largest emerging markets. Fitch believes these should more than offset continuing weakness in the eurozone and Japan.

The United States is expected to see an acceleration in 2017 to 2.2% from 1.5%. Fitch’s assessment of the impact of President-Elect Trump’s proposed reflationary policies were noted, including corporate and personal income tax cuts combined with a focus on infrastructure investment. Fitch also sees this fiscal stimulus totaling 0.50% to 0.75% of GDP to produce a near-term boost to growth. Still, Fitch also noted that Trump’s rhetoric on trade policy increases downside risks to growth in the medium term.

One boost to the economic recovery in 2017 is that the crises in Brazil and Russia are expected to ease. The slowdown in China’s growth rate is expected to continue on a gradual path — down to a projected 6.4% GDP growth in 2017 from 6.7% in 2016. China is expected to remain committed to its growth target of approximately 6.5%.

Fitch’s 2017 outlook is addressing a Trump victory and a Brexit move, as well as a risk to the creditworthiness due to political orthodoxy reducing the predictability of policy. Fitch said:

Global sovereigns face elevated levels of political risk and uncertainty in 2017, says Fitch Ratings, embodied by the unexpected election of President-elect Donald Trump in the US and the UK’s Brexit vote in June. These risks are reflected in a trend away from political orthodoxy that reduces the predictability of policy direction in advanced countries in 2017. Combined with a general trend towards looser fiscal policy and greater trade protectionism, this carries risks to sovereign creditworthiness among both advanced economies and emerging markets (EM), although the overall outlook for Fitch’s sovereign ratings in 2017 is stable.

While the large majority (82 of 114) of Fitch’s sovereign ratings retain Stable Outlooks as we head into 2017, risks are clearly tilted to the downside, given the distribution of 25 Negative and only three Positive Outlooks. The threat of increased trade protectionism and a stronger dollar will maintain downward pressure on EM sovereigns’ macroeconomic performance and ratings, with 20 remaining on Negative Outlook as we move towards year-end. Key EM sovereign rating sensitivities will include the extent to which policy responses can mitigate the negative effects of subdued commodity prices, weaker trade flows and the potential for renewed dollar strength.

Fitch also warned about Europe:

Euroscepticism and populism could affect European cohesion in the coming months, with the Italian constitutional referendum in early December to be followed by Dutch, French and German national elections in 2017. Any further significant political shocks triggered by electoral events in Europe could prove hugely damaging for the European project, although such a scenario is not Fitch’s base case.

In Europe, fiscal loosening is already being pursued to some extent as austerity fatigue and a focus on political issues such as Brexit, the migrant crisis and security concerns have diverted attention away from fiscal consolidation. This has manifested itself in many eurozone governments moving away from a strict interpretation of the European fiscal rules, typically without sanction by the European Commission. This is likely to be growth-supportive in the near term but further undermines fiscal credibility. High public debt ratios remain one of the key rating weaknesses for western European sovereigns, meaning that few have material fiscal space within their existing rating categories.

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Fitch offered a final warning over any trade wars and how they could impact global growth and emerging markets. It said:

The threat of less open trade relationships between the US and key trading partners, including China, combined with a stronger dollar would be generally negative for EM countries, and particularly so for smaller open economies. A “trade war” between the US and China would have adverse consequences for GDP growth and inflation in both countries, and could lead to depreciation of the RMB and financial market risk aversion, which would likely spill over to other emerging markets.

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