Fitch Ratings today said that downside risks to advanced countries’ growth prospects have risen with increased risks of political shocks affecting investments, but emerging economies holds steady.
Fitch Ratings’ latest bi-monthly Global Economic Outlook (GEO) report, however, said that growth pressures on emerging markets have eased somewhat of late. These economies used to act as a drag on global economy over the last couple of years.
“It is too soon to say the BRICS are back, but the macro picture in the big emerging markets is certainly steadying,” Fitch Chief Economist Brian Coulton said.
The US-based agency today projected India to grow at a slower pace of 7.4 per cent in the current fiscal and touch 8 per cent growth only in 2018-19.
With populism gaining traction in many countries, Fitch said the risk of political shocks adversely affecting the outlook for private investment has increased.
“At the same time, the capacity of central banks to engender stronger growth appears to be diminishing,” it said.
Fitch also revised downwards its forecast for US growth in 2016 to 1.4 per cent, from 1.8 per cent in the July GEO.
“This year is likely to see the lowest annual growth rate for US GDP since 2009 as oil sector adjustments, weak external demand and the earlier appreciation of the dollar take their toll on industrial demand,” it added.
Advanced country growth over 2016 to 2018 will be hardly any better than the lacklustre 1.5 per cent annual average growth rate seen over 2011 to 2015. Moreover, downside risks to advanced country growth have increased, it said.
“The rise in populism seen in many advanced countries could be a precursor to increased trade-protectionism and growing fragmentary tensions in the eurozone, both of which would increase uncertainty and damage prospects for private sector investment,” added Coulton.
Meanwhile, the capacity of central banks to counter adverse growth shocks may be falling, Fitch said.
Rising political pressures and concerns about the effectiveness of monetary easing have contributed to growing support among policy makers for fiscal stimulus as a means of restoring growth, it said.
The Fed is likely to be the only major central bank tightening monetary policy in the near term as it lays the groundwork for a December rate rise.