SINGAPORE (Dec 11): Fitch Solutions has revised its global growth forecast for 2019 downwards by 0.1 percentage point to 3% to accentuate its view that global growth will slow over the coming years after peaking at 3.4% in 2018.
This comes as the primary distributor of Fitch Ratings content revises its growth forecasts downwards for both emerging and developed markets, with Argentina, Malaysia, Hong Kong and Thailand seeing the largest negative revisions for 2018-2019.
Going forward, the agency believes heightened financial market volatility and risk aversion will remain in play across global markets from now till 2019, skewing risks to the downside for emerging markets (EMs) in particular, which will remain vulnerable to bouts of risk aversion and safe haven assets in 2019.
Despite this, Fitch believes key indicators of financial market stress have yet to hit levels that warrant a material revision lower on its forecasts.
“The prospect of a more dovish US Fed, coupled with lower oil prices and greater stimulus from China, should provide some support to EMs over the short term, helping to mitigate some of these risks. The balance of factors has accordingly led us to maintain our broad expectation for robust EM growth in the years ahead,” says the agency.
Among developed markets in Asia, Fitch has revised down its 2018-2020 growth forecasts for Hong Kong by 0.3-0.7 percentage points to account for lingering trade headwinds, tightening monetary conditions and weaker consumer spending.
While Fitch says 2019 is increasingly looking like it could be an inflection point for the global economy, it is not anticipating a recession as it believes three important developments in recent weeks will help to support the global economy in the near term.
These are namely:
- An increased propensity among global policy makers to help allay fears, as shown by more dovish tone adopted by the US Federal Reserve in its early November comments, followed by the temporary tariff truce struck last week between presidents Donald Trump and Xi Jinping at the G20 summit;
- Currently stable oil prices at around US$60 per barrel, which Fitch believes provides an anchor to inflation expectations in development markets as well as respite to several emerging markets (EMs); and
- Potential for a small cyclical upswing in China’s economy as a result of various stimulus measures implemented since April, which would in turn be positive for other EMs
Nonetheless, Fitch continues to see increasing risks from tightening liquidity, negative market sentiment, increased financial market volatility as well as looming political and macro-risks.
“With USHY credit spreads now pushing higher - driven mainly by the rout in oil - this could mark the topping out of the asset class and a broader move higher in risk premia, which in turn could have a more pronounced negative impact across other areas of the economy and growth. As such, we will continue to closely monitor how financial market volatility and trade policy uncertainty feed through to our country-specific and global growth forecasts,” concludes Fitch.
