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Fitch reduces its global GDP development prediction for 2022 to 2.9pct

14 June 2022 11:11 (UTC +04:00)

Fitch Ratings, a global ratings organization, lowered its global GDP development prediction for the current year to 2.9 percent on Monday, APA-Economics reports citing the organization.

Global inflation pressures are continuing to rise during the Russia and Ukraine conflict, according to Fitch's newest research, with more negative consequences for the development outlook.

The newest quarantine restrictions in China as a result of coronavirus added to global industrial supply chain challenges, according to the report.

It highlighted, "the biggest revision is to China, where we now expect growth to fall to 3.7% this year, down from 4.8% in March."

It noted that "the lockdown in Shanghai will cause China’s GDP to fall in sequential quarterly terms in 2Q22 and with the ‘dynamic-zero’ COVID-19 policy still in place, we do not expect there to be a swift bounce back.”

The US economy has near-term momentum, with consumer spending supported by strong growth in jobs and nominal wages. But growth is set to slow from mid-2023 to barely positive rates in quarterly terms on more aggressive monetary tightening. "We forecast US growth to fall to 1.5% in 2023 and 1.3% in 2024. Historical experience points to a significant risk of a US recession in the wake of sharp monetary tightening," it said.

“Inflation challenges have become so pronounced that central banks are being forced to respond, abandoning prior forward guidance. The risk of inflation becoming embedded as wage-price dynamics develop and price expectations rise is too big to ignore,” said Brian Coulton, Fitch Ratings’ Chief Economist. Labour markets are very tight in the US and UK, where wage inflation is high and rising as workers resist real wage cuts amid high job turnover.

"In this context, we now expect the Fed to raise interest rates to 3.0% by 4Q22 and to 3.5% by 1Q23, i.e. above their estimates of the neutral rate and hence to a ‘restrictive’ stance. We also now see the Bank of England hiking rates to 2% by 4Q22 and 2.5% by 1Q23," said the report.

The pace of wage growth has also risen in the eurozone, though only to 2.8%. But with near-term inflation much higher, the report now expects the ECB to raise rates by 100bp this year followed by 50bp in 2023. It sees the ECB main refinancing rate at 1.5% by 2Q23, close to ECB estimates of neutral.