Fitch:New threats and old risks to global recovery

Fitch Ratings says a new round of adverse shocks centred on the eurozone is slowing the fragile global economic recovery. In its latest quarterly Global Economic Outlook (GEO), Fitch forecasts real GDP growth of major advanced economies (MAE) to remain weak at 1.1% in 2012, before only a modest rebound to 1.7% in 2013 and 2.2% in 2014.

For its world GDP forecast, Fitch has revised down real growth, based on market exchange rates, to 2.2% for 2012 and 2.8% for 2013 from 2.3% and 2.9% respectively in the March edition of the GEO.

"Fitch expects the recent intensification of financial tensions in the eurozone to have a significant negative impact on the real economy. Sizeable fiscal austerity measures in several member states will also weigh heavily on short run growth. Fitch projects eurozone GDP to contract 0.4% in 2012, followed by growth of 0.9% in 2013 and 1.5% and 2014," says Gergely Kiss, Director in Fitch's Sovereign team.

Release of Q112 GDP data across the eurozone illustrated growing divergence among member states and Fitch expects this to persist over the forecast horizon. The better than expected Q112 GDP outturn, a flat q/q, following a 0.3% contraction in Q411, provides some support to annual GDP projections. However, the agency forecasts 2012 GDP will contract in Italy and Spain by 1.9% in 2012, while Germany and France will have growth of 0.9% and 0.4% respectively.

Economic growth in BRIC countries has slowed recently and the vulnerability of future growth to domestic and global shocks has increased. Nevertheless Fitch expects GDP growth rates to outstrip MAE growth significantly over the forecast horizon. In Brazil, India and Russia growth rates can pick-up over the medium term from a dip in 2012, while in China Fitch expects growth to stabilize at around 8% in 2012 and 2013, followed by 7.5% growth in 2014.