Fitch: Confidence Eroding Undermining Business Investment Growth



In its latest quarterly Global Economic Outlook (GEO), Fitch Ratings has revised down its growth forecasts for all major advanced economies (MAE) as Q2/11 outturns were weaker than previously forecast by Fitch, with MAE growth stalling at rates not seen since 2009.

Growth in emerging markets will also moderate according to the agency, albeit still remain robust. Overall, the agency has revised down world growth based on market exchange rates to 2.6% in 2011 compared with 3.1% in the previous edition of the GEO, 2.7% in 2012 compared with 3.4% previously, and 3.1% in 2013 from 3.4% previously.

While temporary factors are still playing a role in suppressing economic activity, the recent intensification of financial market volatility and fiscal policy uncertainty has eroded confidence. This, in turn, undermines private consumption and business investment growth.

“Fitch does not project a ‘double dip’ in its baseline global economic projections. However, the likelihood of a recession has increased, as intensified financial market volatility could further amplify risk aversion behavior and lead to tighter credit conditions,” said Maria Malas-Mroueh, director in Fitch’s Sovereign team.

“In the euro area, forecasts now incorporate near-zero quarterly growth until Q1/12, partially reflecting the impact of the ongoing sovereign debt crisis as sentiment across Europe has weakened and uncertainty has increased markedly since June,” added Malas-Mroueh.

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