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SINGAPORE (Jan 18): Fitch Ratings says decent US domestic demand and real GDP growth of over 6% for China are still two achievable scenarios in 2019, in spite of market concerns of a sharp downturn in growth this year.
According to a note issued by Fitch on Thursday, the ratings agency says the broad contours of its Dec 2018 Global Economic Outlook (GEO) forecasts for 2019 – which entail above-trend growth in the US and policy easing preventing growth dipping below 6% in China – still look intact.
This comes even as business sentiment and global manufacturing data showed a widespread decline across multiple geographies, which Fitch mainly attributes to the slowdown in growth in China.
Nonetheless, the agency continues to stand by its 2019 forecast of 6.1% real GDP growth in China as fixed asset investment – which led the initial slowdown – returns to positive y-o-y growth territory, while new housing continues to show encouraging growth momentum.
It also believes China’s latest credit data showed “tentative signs of stabilisation” , with aggregate financing to the real economy growing 10.3% in Dec 2018 from 10.4% the month before, following several months of much larger declines in the annual growth rate.
“Policy in China has been eased further with the recent cut in banks' required reserve ratios and the authorities' commitment to tax cuts and supporting infrastructure spending has become more vocal in recent weeks. Our current baseline forecasts also assume that US tariffs on US$200 billion of Chinese imports will rise to 25% in early 2019, a shock that may be avoided if trade talks make further progress,” says Fitch.
Although manufacturing indicators in the US have also deteriorated, the agency highlights how private sector demand continues to look robust, with ‘now-cast’ estimates pointing to annualised growth of around 3%.
As such, Fitch expects the US to register decent growth for 2019 on the back of strong job gains and rising nominal & real wage growth, albeit at a slower rate than in 2019.
“The tightening in financial conditions has been modest and the Fed now looks likely to raise rates in 2019 by less than the three hikes predicted in the December GEO. The Federal government shutdown could take a toll on growth in 1Q19 but for now our working assumption is that fiscal policy continues to provide support to US domestic demand growth in 2019 as a whole,” comments the agency.
As for Eurozone forecasts, Fitch is less optimistic as PMIs registered their largest falls in recent month.
“The slowdown in world trade and fading credit impulse now look likely to see Eurozone growth heading back down towards potential (estimated to be below 1.5%) more quickly than previously expected. The possibility of a no-deal Brexit adds further downside risks,” it cautions.