Growth Forecast Revised: In its March 2024 Global Economic Outlook, Fitch Ratings has revised its global growth forecast upwards to 2.6 per cent, from the earlier projection of 2.4 per cent. This revision reflects renewed confidence in the European economy, improvements in China’s export sector, and stronger domestic demand in emerging markets (EMs) excluding China.

European and Chinese economic Gains

Fitch Ratings’ Chief Economist Brian Coulton highlighted several key drivers behind the upgraded forecast in a note released on Tuesday. The Eurozone growth projection has been raised by 0.2 percentage points (pp) to 0.8 per cent, while China’s growth forecast has increased to 4.8 per cent from 4.5 per cent. Additionally, growth in EMs excluding China has been sharply revised upwards by 0.5pp to 3.7 per cent.

“The revision comes in the backdrop of a renewed confidence in the European economy, an improvement in China’s export sector, and domestic demand in emerging markets showing stronger momentum,” Coulton explained.

US Growth steady despite gradual slowdown

In contrast, the United States is experiencing a gradual slowdown. However, Fitch Ratings has maintained its 2024 growth forecast for the US at 2.1 per cent. This stability reflects a resilient, albeit slowly decelerating, economic performance in one of the world’s largest economies.

2025 forecast: mixed prospects

Looking ahead to 2025, Fitch Ratings expects global growth to edge down to 2.4 per cent. This projection includes a slowdown in US growth to a below-trend rate of 1.5 per cent and a modest pick-up in the Eurozone to 1.5 per cent. China’s growth is anticipated to moderate to 4.5 per cent as exports and government spending decelerate.

European recovery and monetary policy shifts

European recovery prospects appear robust, supported by a reversal of terms-of-trade and energy shocks, a revival in energy-intensive industries in Germany, and a rebound in real wages. Stronger real incomes are expected to boost household spending, mitigated by diminishing drag from earlier European Central Bank (ECB) tightening measures.

“The expected pivot to global monetary policy easing is now taking shape,” Fitch Ratings noted. The ECB has recently cut rates, and the US Federal Reserve and Bank of England (BOE) are expected to follow suit in the third quarter of 2024. Despite this easing, persistent inflation suggests that global rates will decline at a shallower pace over the next 12-18 months.

Cautious approach to monetary policy

Fitch Ratings highlighted that the global monetary policy cycle is entering a new phase, with rates likely to fall slowly but remain at levels restricting demand. The ECB is expected to cut rates twice more this year, while the US Fed is anticipated to start cutting rates in September, followed by another cut in December.

“This is later than we had expected, reflecting stalled disinflation momentum in the first four months of the year. But US wage growth is gradually cooling,” Fitch Ratings said. However, the agency cautioned that central banks remain wary of loosening policy too rapidly, particularly given high services inflation driven by rising labour costs and housing rents.

Fitch Ratings boosts global growth forecast to 2.6% for 2024

Looking ahead to 2025, Fitch Ratings expects global growth to edge down to 2.4 per cent.

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