<< back
ReachX logo

Global growth picture appears dicey as 2020 headwinds rise

Publication Date: 13 Dec 2018 - By Gaurav Sharma (Associate Editor ReachX) By Gaurav S.

Macro Environmental, Social & Governance Investment Strategies Multi Asset Global


Global growth is slowing and becoming less well-balanced, while downside risks are rising, particularly for 2020, according to a leading rating agency. 

In a recent note to its clients, Fitch Ratings said the world economy is still expanding at a rapid pace, but “cracks are starting to appear” in the global growth picture. 

Brian Coulton, Chief Economist at Fitch Ratings, said: “Eurozone growth outturns have disappointed once again, world trade is decelerating and the China slowdown is now fact, not forecast.”

Growth dynamics within the three main economies have become more divergent, with US growth still rising on a year-on-year basis, while growth in the eurozone and China is falling, Coulton added.

A historically tight US labour market and the ongoing fiscal boost to growth from higher government spending will keep the US Federal Reserve on a course for three more rate hikes in 2019 despite a softer external environment. 

“US GDP growth remains on track to reach around 3% this year. While we expect growth to slow next year, the economy will still expand at an above-trend pace of 2.6%,” Fitch said.

But downgrades to the eurozone growth outlook, and stubbornly low core inflation now look likely to persuade the ECB to hold off from raising interest rates until 2020. “We are no longer forecasting the ECB to raise rates in 2019. This will help provide further support to the US dollar, keeping pressure on emerging markets (EMs), where financing conditions have tightened significantly.”

Fitch’s base case remains a soft landing for global growth in 2020 as US fiscal support fades. But downside risks - from a faster-than-expected tightening of global financial conditions as central bank liquidity shrinks, or an escalation in market fears about eurozone fragmentation - have increased. 

“Notably, 2018 has shown the capacity for tightening global liquidity to adversely affect the growth outlook, particularly for EMs. Trade protectionism also remains a key downside risk despite some recent more positive news flow on the US/China trade war, with the announcement of fresh negotiations and a 90-day extension of the deadline before the next increase in US tariffs.”

Fitch currently sees global growth forecasts growth peaking in 2018 at 3.3% before moderating to 3.1% in 2019 and then falling below 3% in 2020. 

Forecasts for eurozone growth in 2018 and 2019 have been revised down to 1.9% and 1.7%, respectively. EM growth forecasts for 2019 and 2020 have also been cut, partly reflecting tighter financial conditions in India, Indonesia and Turkey. 


Most read