Fitch Rating Global Economic Outlook and other GDP Forecasts

Fitch Ratings says in its newly published Global Economic Outlook (GEO) that it expects the global economy to strengthen gradually in H213 and 2014-15 as the US gathers steam and the eurozone approaches a cyclical turning point. However, the agency has cut its 2013-2014 growth forecasts for all four of the BRIC nations. Its latest forecasts for world GDP growth are 2.4% in 2013, 3.1% in 2014% and 3.2% in 2015 (weighted at market exchange rates).

For the major advanced economies (MAE), Fitch forecasts weak growth of just 0.9% in 2013 before accelerating to 1.9% in 2014 (both practically unchanged from the March GEO) and 2.0% in 2015 (included for the first time).

“Several of the largest emerging markets are experiencing strains from spill-overs from advanced economies and China, difficult policy trade-offs, a declining impact from credit growth and structural bottlenecks. Therefore growth differentials will narrow between advanced economies and emerging markets over the forecast horizon” says Gergely Kiss, Director in Fitch’s Sovereign team. Nonetheless EM growth will continue to far outstrip the pace in MAEs and to strengthen from 4.8% in 2013 to 5.2% in 2014-2015.

Fitch estimates that 2012-2013 will see the second weakest BRICs’ growth (after 2009) since the Russian crisis in 1998. It forecasts China to grow by 7.5% in 2013 (down from 8.0% in the March GEO) and 2014, followed by 7% in 2015. The agency has also cut its growth forecasts for other major EMs. Downward revisions for India, Brazil and Russia total 0.8pp, 1.1pp and 1.7pp for 2013 and 2014, respectively.

The US private sector’s positive growth momentum is supported by the housing market recovery, improving household balance sheets, strong corporate profitability and loose monetary conditions. Fiscal drag, stemming from tax increases and spending cuts due to the sequester, is a near term downside risk. GDP growth will accelerate from 1.9% in 2013 to 2.8% in 2014 and 3% in 2015 as the pace of fiscal consolidation eases.

‘Abenomics’, the reflationary economic policy strategy in Japan, will buoy growth in the short term, though its medium term success is less certain. Fitch forecasts growth of 1.8% in 2013 as fiscal and monetary stimulus provides an initial boost to confidence, before moderating to 1.5% in 2014 and 1.2% in 2015 as the impetus fades.

Goldman Sachs also downgraded China’s GDP Growth Forecast

Goldman Sachs cut China’s gross domestic product (GDP) growth forecast for the second quarter to 7.5 percent on the year from 7.8 percent previously. It also revised full-year growth estimates to 7.4 percent for 2013 and 7.7 percent for 2014, from 7.8 percent and 8.4 percent, respectively. The official growth target for the year is 7.5 percent.

US GDP cut for last quarter

Data on Wednesday showed U.S. gross domestic product expanded at a 1.8 percent annual rate in the quarter, compared with the previously reported 2.4 percent pace.

Edward Keon, who is managing director at Prudential’s Quantitative Management Associates, expects GDP to accelerate dramatically in the coming year. In a press briefing Wednesday, he outlined why he expects quarterly GDP figures to print as high as 5% during some quarters of 2014.

The scope of his argument comes down to one key point: government policies, which have been blamed for dragging down growth, mask an underlying strength in the private sector.

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