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Fitch Ratings has trimmed the world GDP growth rate by 0.5 percentage points (pp) from its June estimate to 2.4% as the European gas crisis, high inflation and tighter monetary policies across the world are taking a heavy toll on economic prospects.
“We’ve had something of a perfect storm for the global economy in recent months, with the gas crisis in Europe, a sharp acceleration in interest rate hikes and a deepening property slump in China,” said Brian Coulton, Chief Economist.
For 2023, world GDP is set to grow at 1.7% as the eurozone and UK are now expected to enter recession later this year and the US will suffer a mild recession in mid-2023, according to Fitch forecasts. "We now expect US growth of 1.7% in 2022 and 0.5% in 2023, revised down by 1.2pp and 1pp, respectively."
Fitch expects the eurozone economy to contract by 0.1% in 2023 - a drop of 2.2pp since June reflecting the impact of the natural gas crisis. The forecast now assumes a full or near complete shut-off of Russian pipeline gas to Europe. Despite EU efforts to find alternatives, total EU gas supply will fall significantly in the near term, with impacts felt through industrial supply chains.
Fitch said policy rates have risen more rapidly than expected as inflation, higher near-term inflation expectations and tight labour markets have prompted the Fed, Bank of England (BOE) and ECB to turn more hawkish in recent months.
The Fed is now expected to take rates to 4% by year-end and hold them there through 2023; the ECB refinancing rate is expected to rise to 2% by December; and the BOE Bank Rate is forecast to reach 3.25% by February 2023.
In China, recovery is constrained by Covid-19 pandemic restrictions and a prolonged property slump, "and we now expect growth to be 2.8% this year and to recover to 4.5% next year, downward revisions of 0.9pp and 0.8pp, respectively."
(Writing by Brinda Darasha; editing by Daniel Luiz)
