Fitch ups 2024 world growth forecast to 2.6%; cautions on inflation

However, for 2025, Fitch expects world growth to edge down to 2.4 per cent as US growth slows to a below-trend rate of 1.5 per cent and growth in the Eurozone picks up to 1.5 per cent

Fitch Ratings has revised upwards its growth forecast for the global economy to 2.6 per cent from the earlier projected 2.4 per cent in the March 2024 Global Economic Outlook. The revision comes in the backdrop of a renewed confidence in European economy, an improvement in China’s export sector and domestic demand in emerging markets (EMs), excluding China, shows stronger momentum. 

The US, Fitch Ratings said, is slowing but only gradually and their 2024 growth forecast for one of the world's largest economies remains unchanged at 2.1 per cent.

“We have raised our forecast for world growth in 2024 to 2.6 per cent from 2.4 per cent in the March 2024 Global Economic Outlook. We have revised up Eurozone growth by 0.2 percentage points (pp) to 0.8 per cent; China’s growth to 4.8 per cent from 4.5 per cent; and EM excluding China growth quite sharply, by 0.5pp to 3.7 per cent,” Brian Coulton, chief economist at Fitch Ratings wrote in a note on Tuesday.

 

However, for 2025, Fitch Ratings expects world growth to edge down to 2.4 per cent as US growth slows to a below-trend rate of 1.5 per cent and growth in the Eurozone picks up to 1.5 per cent. It also expects growth in China to fall to 4.5 per cent next year, as exports and government spending decelerate.

European recovery prospects, Fitch Ratings said, are on a firmer footing as the terms-of-trade and energy shock reverses, energy-intensive industries start to pick up in Germany and real wages rebound. Stronger real incomes, the rating agency believes, will boost spending by households with robust financial buffers, while the drag from earlier ECB tightening diminishes.

"The expected pivot to global monetary policy easing is now taking shape, with the ECB recently cutting rates and the US Federal Reserve and the Bank of England (BOE) both expected to follow suit in 3Q24. But inflation is surprisingly persistent and we now expect global rates to decline at a shallower pace over the next 12-18 months," Fitch Ratings said.

Monetary policy cycle

The global monetary policy cycle, Fitch Ratings said, is entering a new phase, in which rates are likely to fall slowly but to levels that will still be restricting demand. Fitch expects the ECB to cut rates twice more this year, and the US Fed to start cutting rates in September with 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 ratings agency believes that central banks are cautious about loosening policy too rapidly, particularly in light of high services inflation. Pressures from rising labour costs and housing rents and the normalisation of relative price trends are keeping services inflation elevated.