Fitch Ratings cuts 2020 global growth forecast to 1.3%; raises estimate for 2021

Updated : April 06, 2020 12:26 PM IST

Fitch raised the global growth forecast for 2021 to 3.3 percent from 2.7 percent in the December GEO.

As per Fitch, the China GDP is likely to fall by over 5 percent in the first quarter of 2020.

Fitch now forecasts US GDP growth to be just 1 percent in 2020.

Fitch Ratings has cut its baseline global growth forecast for 2020 to 1.3 percent from 2.5 percent in the December 2019 Global Economic Outlook (GEO). This revision will leave the level of 2020 GDP $850 billion lower than in the previous forecast.

"We expect global growth to fall to 1.3 percent in 2020, which would be weaker than global downturns seen in the early 1990s and in

2001," the rating agency said in a report.

However, it raised the global growth forecast for 2021 to 3.3 percent from 2.7 percent in the December GEO. This reflects an assumption that the health crisis will ease in the second half of 2020, which should allow for a sharp bounce-back as activity reverts to normal levels, inventories are rebuilt, and some consumer and capital spending is re-profiled, Fitch pointed out.

Meanwhile, it also sees an outright decline in global GDP this year if more pervasive lockdown measures have to be rolled out across all the G7 economies. Emergency macro policy responses are purely about damage limitation at this stage but should help secure a ‘V-shaped’ recovery in the second half of 2020 assuming that the health crisis eases, the rating agency noted.

The shock to the Chinese economy – primarily resulting from the official ‘lockdown’ response to contain the virus – has been very

severe.

As per Fitch, the GDP is likely to fall by over 5 percent in the first quarter of 2020 and by 1 percent year-on-year.

"Falling GDP in China is virtually unprecedented and, in the near term at least, these numbers are worse than most previous hypothetical ‘hard-landing’ scenarios. The good news is that the daily number of new COVID-19 cases in China has fallen very sharply, which should pave the way for a marked economic recovery in 2Q20 – high-frequency indicators already point to this starting in March," noted the agency.

Nevertheless, the delayed impact of supply-chain disruptions and lower Chinese demand in the rest of the world will continue to be felt profoundly for some time, particularly in the rest of Asia and the eurozone, it added.

It also expects Italy, Spain, and France to see a very sizeable outright decline in GDP in the coming months. The interruptions to economic activity seen in China – and now in Italy – are on a scale and speed saw other than during periods of military conflict, natural disasters or financial crises.

Even though it expects a recovery in China from 2Q20, growth is expected to fall to 3.7 percent for the year 2020 as a whole. It also forecasts Italian GDP to fall by 2 percent this year and Spanish GDP by almost 1 percent.

Eurozone growth is likely to be minus 0.4 percent this year, the agency estimates. Meanwhile, for the US, Fitch now forecasts GDP growth to be just 1 percent in 2020 compared with a pre-virus outlook of 2 percent and 2Q20 GDP is expected to fall by 0.5 percent (or 2 percent annualised).

According to Fitch, the decline in US GDP is reflected in the likelihood that travel, tourism, and business and leisure events will be disrupted for months.

However, going ahead, the recent aggressive macro policy responses – the emergency interest rate cuts, massive central bank liquidity injections, macro-prudential easing, credit guarantee schemes and substantive fiscal stimulus – should start to boost growth from 2H20, helping the level of GDP to revert to close to its pre-virus path over in the medium term, said the rating agency.

Published : April 06, 2020 12:26 PM IST

Fitch Ratings cuts 2020 global growth forecast to 1.3%; raises estimate for 2021

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