Downside Risks to Global GDP Growth

Fitch Ratings’ latest Global Economic Outlook forecasts that global growth will pick up in 2015 and 2016. Unfortunately, Fitch sees the risks being weighted to the downside. Growth in emerging markets is expected to remain subdued after a cyclical trough this year, while major advanced economies will have an increased contribution to global expansion.

Fitch sees world GDP growth at 2.6% in 2014. Where this gets interesting is that Fitch sees 3.0% global GDP growth in 2015 and 3.1% global GDP growth in 2016 — and the 2014 and 2015 forecasts are both 0.1 percentage points lower than the same global outlook given in June, mostly due to emerging markets.

All in all, the good news is that Fitch is still calling for growth and it is signaling that we will not be falling into a deflationary cycle. The bad news is that this growth projection is down slightly again, and Fitch is assuming that much of the growth is going to have a much lower participation rate by the key emerging markets.

Here is how Fitch rates individual economies in its Global Economic Outlook:

  • United States: Fitch maintains its forecast of robust GDP growth of 3.1% in 2015 and 3.0% in 2016, up from 2.2% in 2014.
  • Eurozone: GDP growth of 0.9% in 2014, followed by 1.3% in 2015 and 1.5% in 2016 — slightly weaker than in the June outlook. High unemployment will persist and remain above 11% until 2016. Base case is for eurozone inflation to be low at 0.5% in 2014, 1% in 2015 and 1.3% in 2016, but for protracted deflation to be avoided.
  • Emerging markets as a whole: GDP to slow sharply from 4.7% in 2013 to 4.0% in 2014, with only a subdued recovery in 2015 and 2016.
  • China: GDP growth to moderate to 7.2% in 2014, 6.8% in 2015 and 6.5% in 2016.
  • India: The only BRIC country where growth picks up in 2014, to 5.6%, and accelerates further to 6.5% in 2015 and 2016.
  • Japan: GDP growth was revised down to 1.4% from 1.6% in 2014, and GDP growth maintained at 1.3% for 2015 and 2016.
  • United Kingdom: Fitch maintains its forecast that growth will slow from 3.0% in 2014 to 2.5% in 2015 and 2.3% in 2016; base case is that nominal wage growth will pick up.

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On global interest rate trends, Fitch said:

Fitch expects the Fed and Bank of England to start gradually tightening policy over the next few quarters. Meanwhile, the ECB announced further easing measures at its September meeting and the Bank of Japan is continuing with its qualitative and quantitative easing strategy. The ECB and Bank of Japan are likely to keep interest rates unchanged until at least 2016.