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News > Fitch slashes its GDP forecasts

Fitch slashes its GDP forecasts

Tuesday 21 June 2022

Headwinds mount, dragging down the outlook for the world’s major economies.

As the global economy continues to grapple with the prospect of persistent inflation and ever-tighter monetary policy, Fitch Ratings is cutting a wide array of growth forecasts.

The rating agency slashed its global GDP growth forecast for 2022 to 2.9%, down by 0.6 percentage points from its previous call, citing intensifying global inflation pressures, which have “increasingly adverse implications for the growth outlook,” it said. It also lowered its global growth projection for 2023 by 0.1 percentage points to 2.7%.

Among other things, Fitch said China’s strict approach to Covid-19 is adding to global supply chain pressures, and the disruptions to both energy and food supplies due to fallout from the Russia-Ukraine war “are having a swifter impact on European inflation than expected.”

Inflation pressures are also building in the resurgent services sector, it said, “particularly in the U.S. and U.K., where tight labour markets are boosting nominal wage growth.”

Fitch’s biggest revision is to its forecast for China, where it cut its expectations by more than a full percentage point: it now expects growth of 3.7% in China this year, down from 4.8%.

“The lockdown in Shanghai will lead China’s GDP to fall in sequential quarterly terms in the second quarter of 2022 and with the ‘dynamic-zero’ Covid-19 policy still in place, we do not see a swift bounceback,” it said in a report.

The rating agency’s growth forecast for the U.S. was also cut by 0.6 percentage points to 2.9%, and its eurozone forecast was reduced by 0.4 percentage points to 2.6%.

“In the eurozone, inflation will drag on consumers’ real incomes, and German industry is being hit by supply chain disruptions and the China slowdown,” Fitch said.

In the U.S., the economy has near-term momentum, Fitch said, “with consumer spending supported by strong growth in jobs and nominal wages.”

However, it sees growth slowing mid-2023 to “barely positive rates in quarterly terms on more aggressive monetary tightening.”

For 2023, Fitch sees U.S. growth slipping to just 1.5% — and sliding to 1.3% in 2024.

“Inflation challenges have become so pronounced that central banks are being forced to respond, abandoning prior forward guidance,” said Brian Coulton, chief economist at Fitch, in a release. “The risk of inflation becoming embedded as wage-price dynamics develop and price expectations rise is too big to ignore.”