Fitch Sees Faster Global Growth

The global economy is strengthening and growth is expected to hit 2.9% this year and 3.1% in 2018, according to debt watcher Fitch Ratings in its latest Global Economic Outlook released Tuesday.

"Faster growth this year reflects a synchronized improvement across both advanced and emerging market economies. Macro policies and tightening labor markets are supporting demand growth in advanced countries, while the turnaround in China's housing market since 2015 and the recovery in commodity prices from early 2016 has fueled a rebound in emerging market demand," said Brian Coulton, Fitch's chief economist, abs-cbnnews reported.

Fitch noted the improvement in the eurozone economies which are now expected to grow 2% this year.

The debt watcher however, also took note of the "evolving monetary policy outlook" in advanced economies. Fitch said China is tightening credit conditions, while the Fed looks set to pursue three or four rate hikes per year through 2019.

"With the Fed now signaling that QE will start to be unwound later this year, these monetary policy adjustments could spark some volatility in global financial markets attuned to persistent monetary accommodation," added Coulton.

The ratings firm also noted the recovery in larger emerging market economies like Brazil and Russia. Fitch said the latest data suggest consumption and investment is starting to pick up in Russia.

"The two key downside risks identified last quarter—eurozone fragmentation risk and aggressive US-led protectionism—have not gone away but have certainly diminished somewhat in recent months," noted Coulton.

Fitch said Emmanuel Macron's decisive victory in the French presidential election, as well as his party's success in National Assembly elections, have eased concerns about anti-European and anti-euro sentiments gaining additional traction.

Fitch Ratings revised upward Turkey's forecast. The agency now estimates the Turkish economy will expand 4.7% in 2017 and 4.1% next year.

India to Grow 7.4%

Gross domestic product or India's economic growth is expected to rise by 7.4% and 7.6% in the next two fiscal years, Fitch said.

It said, "Public spending on infrastructure is also set to rise, boosting investment. This should help drive a pick-up in GDP growth, which we forecast at 7.4%-7.6% in the next two fiscal years. CPI inflation should also tick up as the current low food price effect will fade, but we expect CPI to remain firmly within the central bank’s target range."

Fitch Ratings said that demonetization did have a material impact on the Indian economy which slowed down to 6.1% GDP growth rate in the last quarter of the fiscal ended March 31, 2017 registering slowest growth since fourth quarter of financial year 2014.

It said, "It appears that the cash squeeze of November 2016–whereby the government pulled 86% of cash in circulation out of the economy virtually overnight–finally did have a material impact on spending. This lagged effect of demonetization on the economy is quite puzzling–as the effects would be expected to be quite rapidly felt–but partly reflects the challenges of measuring spending in an economy with a large informal sector."

China Growth Below Target

China’s economic growth is expected to fall below the government’s 6% target in 2018 and 2019, Fitch said, reflecting the increasing challenge of supporting growth given a higher level of indebtedness.

The ratings agency forecast growth in China of 5.9% in 2019 and 5.8% the year after. The economy is expected to grow 6.5% this year.

Fitch noted tighter credit conditions as authorities clamp down on the growth of leverage in the financial system. The agency said new credit as a share of GDP has already “slowed sharply”, suggesting a slowdown in housing sales ahead. “Housing is the key cyclical sector in the economy and will weigh on growth in 2018 along with a likely slowdown in infrastructure development,” Fitch said.

Fitch pointed out that its growth forecasts for China and Japan in 2017 and 2018 had been revised up by 0.2 percentage points since its March report. Japanese growth is forecast to be 1.2% this year, slowing to 1.1% in 2018 and 0.7% the year after. The agency said “the recent flow of hard data suggests that Japan’s growth momentum has continued to build in the first half of this year”.