Despite months of gloom, the world economy is likely to grow a bit faster this year, according to Fitch Ratings.
This is the word from Fitch Ratings in its September Global Economic Outlook (GEO) published this week.
Slump in China could be a problem.
But the agency warns the deepening slump in China’s property market is casting a shadow over global growth prospects.
It also says monetary tightening increasingly weighs on the demand outlook in the US and Europe.
Bank of England to keep rates high for longer.
“The ECB is also challenged by stubbornly high core inflation and will not be deterred from a further rise in rates by a weakening economic outlook,” says Fitch.
“The Bank of England is now expected to keep rates higher for longer, as wage inflation stays high despite weak growth. We now expect UK growth to expand by 0.2% in annual terms in 2023 but we still forecast a mild recession in 2H23 as a higher interest burden squeezes household spending.”
World growth to do up.
Fitch has revised up its forecast for world growth in 2023 by 0.1pp to 2.5%, reflecting surprising resilience so far this year in the US, Japan and emerging markets excluding China.
The previously hoped-for stabilisation in China’s housing market has failed to materialise and new sales could fall by a fifth this year.
Rapid US consumption.
Housing is a third of investment and 12% of Chinese GDP and has strong multiplier impacts on the wider economy. Policy easing has been underwhelming to date and export demand is falling.
Rapid US consumption growth has continued this year, despite Federal Reserve tightening, helped by a $1.2 trillion drawdown of Covid-19 pandemic savings buffers and robust nominal household income growth.
Labour demand has slowed.
But labour demand has slowed in recent months and wage inflation will ease further as the labour market continues to cool.
Mild US recession?
“In addition to the prospect of slowing labour income, the tightening in credit conditions is becoming clearer, with the US credit impulse turning negative. A downturn in profit growth is also signalling weakening business investment prospects. We still expect a mild US recession, though now anticipate this to occur in the first half of 2024,” says Fitch.
“The eurozone recovery has stalled in the wake of the energy shock and now faces new external challenges from the slowdown in world trade and China. We now expect Germany’s economy to contract by 0.4% this year. ECB policy tightening is weighing on credit growth.”
