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Global economy lagging financial recovery, says Fitch


Agency forecasts 2013 growth of just 1.0% for major advanced economies

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The recent recovery in financial market conditions has not been matched by the real economy so far into 2013, according to Fitch Ratings.

In its latest Global Economic Output report, the agency said the fourth quarter of 2012 saw the weakest quarterly GDP growth in the eurozone and the US since the 2009 recession, while spreads on risky assets tightened and some major stock markets reached near historic peaks.

The report revised Fitch’s global growth forecast to 2.2 percent in 2013 and 2.8 percent in 2014 based on market exchange rates, down from 2.4 percent and 2.9 percent in its previous market assessment. The agency forecasted growth of a mere 1.0 percent for major advanced economies in 2013, followed by only a modest and gradual acceleration to 1.9 percent in 2014.

Gergely Kiss, director in Fitch’s sovereign team, said, "The global economy should benefit from receding tail risks related to the US fiscal cliff, eurozone break-up and a China hard landing; and the gradual progress with private sector rebalancing in various major advanced economies, supported by ultra-loose monetary policy."

Nevertheless, weak business and consumer confidence, high debt burdens and on-going fiscal consolidation in many countries will weigh on the recovery. Additionally, the agency said average inflation in major advanced economies was likely to be below 2 percent in 2013 and 2014.

Fitch also said major central banks would maintain record low interest rates throughout 2013 and, in line with the US Federal Reserve's guidance, beyond 2014 in the US. Emerging markets continue to outpace major advanced economies, although several face significant growth and rebalancing challenges, the agency said.

Recent data has confirmed Fitch's view that China will avoid a hard landing. The agency maintained its 8 percent GDP forecast for 2013 for China, followed by 7.5 percent in 2014, broadly in line with non-inflationary trend growth. In Brazil and India, growth will accelerate from 2012 cyclical troughs, but Fitch has revised down its 2013 growth forecasts for both to 3 percent and 6 percent respectively.

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Global economy lagging financial recovery, says Fitch
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