With all the quantitative easing in the United States, Europe, Japan, China and elsewhere, you would think that trajectory for the global recovery and global growth is well on track. It turns out that Fitch Ratings is maintaining its expectation of global growth, but with a downside risk bias remaining in place.
Fitch’s latest Global Economic Outlook projects that global growth will accelerate gradually in 2014 and 2015. This is expected to be driven by a strengthening recovery in major advanced economies at the same time that growth slows in emerging markets.
World gross domestic product (GDP) growth is projected to be 2.7% in 2014, rising to 3.1% in 2015 and also in 2016. This compares to 2.4% in 2013. If you look back to Fitch’s prior Global Economic Outlook, the 2014 projection is 0.2% higher and the 2015 forecast is 0.1% higher.
Where the risks come about is from deflation in the eurozone (called a meaningful risk), as well as a rate normalization by the U.S. Federal Reserve potentially triggering heightened financial market volatility. Additional risks are that global trade growth could slow further, and of course that higher oil prices could hurt growth in most regions.
U.S. GDP is now projected to be 2.0% in 2014, but the first-quarter contraction’s negative surprise took that 2014 target down from 2.8% after the first quarter. Fitch sees 3.1% U.S. GDP growth in 2015 (unchanged) and 3% U.S. GDP growth in 2016.
ALSO READ: The World’s Most Content (and Miserable) Countries
Eurozone recovery remains fragile according to Fitch. GDP growth is now only projected to be 1.1% in 2014, followed by 1.5% in 2015 and 1.6% in 2016. Fitch noted that Germany and Spain should outpace France and Italy in the next quarters. Unfortunately, Fitch sees high unemployment persisting and remaining above 11% until 2016. Fitch sees inflation remaining very low: only 0.9% in 2014, 1.3% in 2015 and 1.5% in 2016 — well under the European Central Bank’s (ECB’s) target, but also avoiding deflation.
Fitch sees the following GDP growth elsewhere throughout the globe:
- United Kingdom at 3% in 2014, followed by 2.5% in 2015 and 2.3% in 2016
- Japan at 1.6% in 2014, and 1.3% in 2015 and 2016
- Emerging market growth expected to slow to 4.3% in 2014 from 4.7% in 2013, then rising to 4.8% in 2015 and 4.9% in 2016
- China GDP expected to moderate to 7.3% in 2014, followed by 7% in 2015, then coming in at 6.7% in 2016 (amid gradual rebalancing and efforts to contain leverage)
- India’s GDP expected to rise by 5.5% in 2014 (versus 4.7% in 2013) and then rising to 6.5% in both 2015 and 2016.
- Brazil and Russia are expected to slow further in 2014, to 1.5% for Brazil and 0.5% in Russia.
As far as the coming waves of tightening expected, the global outlook said:
Fitch expects the Fed and Bank of England to start to gradually tighten policy over the next 12 months as their economies strengthen, in line with forward guidance. Normalizing monetary conditions after over five years of virtually zero interest rates and unwinding QE-inflated balance sheets is historically unprecedented and may well trigger some increase in financial market volatility from unusually low levels. This will also create a divergent path with the ECB and Bank of Japan, which are still loosening monetary policy and expected to keep interest rates unchanged to at least 2016.
Be advised that this is the base case expectation from Fitch. The more detailed report contains alternative cases in some of the markets.
ALSO READ: Sex and Drugs Could Add $800 Billion to U.S. GDP
The #1 Thing to Do Before You Claim Social Security (Sponsor)
Choosing the right (or wrong) time to claim Social Security can dramatically change your retirement. So, before making one of the biggest decisions of your financial life, it’s a smart idea to get an extra set of eyes on your complete financial situation.
A financial advisor can help you decide the right Social Security option for you and your family. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.
Click here to match with up to 3 financial pros who would be excited to help you optimize your Social Security outcomes.
Have questions about retirement or personal finance? Email us at [email protected]!
By emailing your questions to 24/7 Wall St., you agree to have them published anonymously on a673b.bigscoots-temp.com.
By submitting your story, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.