Fitch releases global outlook, forecasts 2015 global GDP +2.4%, 2016 global GDP +2.9%, 2017 +2.8%
The pick-up in 2016 reflects a recovery from recession in Brazil and Russia, albeit a weak one; while the structural slowdown in China is weighing on global growth potential. Meanwhile we forecast growth in major advanced economies (MAEs) at 1.8% in 2015, 2% in 2016 and 1.8% in 2017. Fitch's global growth forecast (which is weighted at market exchange rates) has weakened since March's GEO by 0.3pp for 2015 - due mainly to USrevisions - and is practically unchanged for 2016.
The US Fed will start the global monetary tightening cycle with the first rate increase before the end of 2015, followed by the Bank of England. However, the pace and extent of the tightening will be subdued by historicalnorms. Fitch forecasts the key US policy interest rate to average 1.1% in 2016 and 2.3% in 2017. The ECB and the Bank of Japan will continue their QE programmes. As recent bouts of market volatility highlight communication ofmajor central banks will remain a key determinant of global financial conditions.
Following an unexpectedly weak 1Q15 out turn, Fitch forecasts the US economy will rebound to 2.2% growth in 2015 and 2.5% in 2016-2017, a revision of-0.9pp for 2015 and -0.5pp for 2016 since the March GEO. While improving fundamentals and strong confidence support the recovery, the appreciating USdollar has hurt trade performance and households' propensity to save isconstraining consumption growth. The labour market is strengthening with unemployment down to 5.5% and wage growth finally starting to pick up.
Our baseline forecast is for eurozone GDP growth to strengthen from 0.9% in2014 to around 1.6% in 2015-2017, but the risk of a Greek exit from the eurozone has intensified following the breakdown in talks between Greece andits creditors and the announcement of a referendum on the bailout proposals,to be held on 5 July. This poses a risk to economic recovery. A weaker exchange rate, low oil prices, strengthening confidence, quantitative easingand improved credit conditions support growth. Nevertheless high debt levelsand structural weaknesses will constrain the recovery for a prolonged periodand the growth potential is weak compared with other MAEs.
The combination of a modest pick-up in headline inflation, strengtheningrecovery and stabilisation of longer term inflation expectations have led toa moderation of deflation risks, although inflation will likely remain belowthe ECB's target until 2017 and deflation risks could re-intensify in caseof adverse shocks, such as a disorderly Greek exit.
There is a stark divergence in growth prospects across emerging markets(EM), reflecting differing exposures to commodity prices, external financingneeds and other global macro trends, as well as country specific factors.Among the BRICs, GDP growth will range from 7.8% in India to a contractionof 3% in Russia and 1.5% in Brazil this year. China is in a gradualstructural slowdown and our unchanged growth forecast is 6.8% in 2015, 6.5%in 2016 and 6% in 2017. India's GDP growth will surpass China's this yearfor the first time since 1999, and accelerate to 8% in 2016 and 8.1% in2017. Recovery from the recession in Russia and Brazil will be weak, withgrowth rates of only 1.5% by 2017.
Japan is forecast to return to above-trend growth of 1.2% in 2015 and 1.4%in 2016, supported by currency depreciation and higher real wages after theweakness in 2H14. However, growth will again slow in 2017 based on theassumption of consumption tax increase scheduled for April 2017. The UK economy is at the peak of its economic growth cycle as spare capacityis gradually absorbed. The GDP growth forecast is 2.5% in 2015, 2.3% in 2016and 2.1% in 2017. The labour market duality, strong employment growthaccompanied by subdued wage dynamics, has continued, while inflationdeclined to -0.1%, its lowest rate for more than 50 years.