Stronger Demand from Emerging Economies, Macro Policies in Advanced Improve Global Growth Forecast

Global economic growth is expected to pick up pace this year. The rate will be next to the highest since 2010, according to a recent Global Economic Outlook report from Fitch Ratings. Growth worldwide is anticipated to reach 2.9% this year and 3.1% in 2018.

"Faster growth this year reflects a synchronized improvement across both advanced and emerging market economies,” said Brian Coulton, Fitch's chief economist. “Macro policies and tightening labor markets are supporting demand growth in advanced countries, while the turnaround in China's housing market since 2015 and the recovery in commodity prices from early 2016 has fuelled a rebound in emerging market demand."

The forecast for the eurozone showed the most improvement as stronger incoming data, improving external demand and enhanced optimism that the European Central Bank’s quantitative easing is gaining traction resulted in 0.3pps to the 2017 eurozone forecast to 2%, analysts said.

Ongoing growth, however, is also dependent on monetary and fiscal policies, which are considered key factors in the short-term improvement of the global growth predictions. China’s recent tightening of credit conditions may impact growth later this year, while the U.S. Fed is expected to raise rates several times through 2019.

"With the Fed now signaling that QE will start to be unwound later this year, these monetary policy adjustments could spark some volatility in global financial markets attuned to persistent monetary accommodation," said Coulton.

A recent uptick in demand from large emerging economies like Brazil and Russia is also positive news that is expected to continue in the near term, Fitch analysts said. "The two key downside risks identified last quarter—eurozone fragmentation risk and aggressive U.S.-led protectionism—have not gone away, but have certainly diminished somewhat in recent months," Coulton said.

– Nicholas Stern, senior editor

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