Fitch Joins the Rest of the World in Cutting China Growth Forecast

In its Global Economic Outlook 2013, Fitch reports:

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.

While China has not entered a recession by its own standards, based on double-digit annual GDP improvement, it has fallen into a doldrums.

Mentioned less often than the problems within China, as the government weighs the action of its banking system against the essential stimulus of growth and support of its largest companies, is the effect of China’s plight on the rest of the world. It is a sort of domino theory in which as the gross domestic product of the People’s Republic falters, so do the imports to the countries that matter so much, particularly to the United States, Japan and the EU nations. The recovery in each of these remains fragile, even with pushes from central banks. A major dislocation in Chinese demand may be enough to move the slowdown in these nations into a reversal.

When the problems of Europe’s recession are sifted, along with the reasons behind a U.S. GDP which grew only 1.8% in the most recent quarter, the cause usually is focused around consumer and government consumption. Those factors are already baked into many predictions of GDP for the balance of this year and next. And Fitch is not sanguine about those prospects:

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).

The normal cycling out of a recession that is expected to “take hold” in 2014 may not take place, with China as the likely cause.