World economy forecast to grow swifter than anticipated in 2023: Fitch

The US, Japan, and other emerging markets, excluding China, demonstrated remarkable resilience in 2023, prompting this revision. The US forecast has been raised by 0.8 percentage points to 2 per cent, Japan saw a 0.7 percentage point hike to 2 per cent, and emerging markets apart from China enjoyed a 0.5 percentage point increase to 3.4 per cent. These positive adjustments more than counterbalanced the 0.8 and 0.2 percentage point decreases to 4.8 per cent and 0.6 per cent for China and the eurozone, respectively.

This change anticipates a rise in the growth differential between emerging markets, excluding China, and developed economies, gravitating towards historical norms due to the earlier onset of monetary policy tightening in emerging nations, as per Fitch.

Fitch trimmed its 2024 global growth forecast by 0.2 percentage points to 1.9 per cent amid universal downward adjustments, including a significant cut in the US growth forecast from 0.2 percentage points to 0.3 per cent. Both the eurozone and China along with emerging markets, excluding China, witnessed a 0.2 percentage point reduction to 1.1 per cent and 4.6 per cent, and 3 per cent, respectively.

Despite underwhelming policy easing and decreasing export demand, there remains a glimmer of hope in the resilience of the US market, which has maintained rapid consumption growth helped by a $1.2 trillion use of Covid-19 pandemic savings and strong household income growth.

However, the US is not without its troubles, as credit conditions are tightening, and there is a clear downturn in profit growth, signalling diminished business investment prospects. A mild US recession is projected to occur in the first half of 2024.

Europe faces its own hurdles with a stalled recovery in the eurozone, compounded by a slowing world trade and China’s economic deceleration. Germany’s economy is expected to shrink by 0.4 per cent this year, while ECB policy tightening curtails credit growth.

The Federal Reserve is nearing its peak rate, contemplating just one more 25-basis-point increase to 5.75 per cent, even as core inflation remains high. Similarly, the European Central Bank (ECB) is dealing with persistent core inflation, undeterred in its plans for a further rate hike despite a frail economic outlook.

In the UK, the Bank of England plans to maintain higher rates for a longer period due to sustained wage inflation, despite anaemic growth. UK's economic expansion is forecast at a modest 0.2 per cent in 2023, albeit with predictions of a mild recession in the second half of the year as heightened interest burdens dampen household spending.

ALCHEMPro News Desk (DP)