July 22, 2022 (MLN): The global growth outlook has deteriorated further amidst sustained high inflation and increasingly hawkish central banks, Fitch says in the latest report issued today.
“Unrelenting inflationary pressures and continued hawkish sentiment from most major central banks have prompted a further deterioration in the global growth outlook”, Fitch said.
As per the rating agency, increasing recession probabilities, emerging market vulnerabilities, the potential effects of more widespread asset price corrections, and inflationary effects on consumer demand are the key risks that could have the most impact on Fitch’s rated portfolio over the coming two years.
Fitch noted that recession risks are high in both the US and Europe amid higher for longer inflation and restrictive Federal Reserve monetary policy.
Moreover, the continuation of the Russia-Ukraine war has increased the risk of a full halt in Russian natural gas exports to Europe, which would be a major macro shock and will likely lead to a eurozone recession and pressure some sovereign ratings in central and eastern Europe, the rating agency said.
Emerging market recoveries are also being pressured by tightening financing conditions and disrupted supply chains.
“Increased food and energy insecurity will commensurately raise the likelihood of policy responses that will drive fiscal effects of inflation”, Fitch noted.
For China, Fitch predicted that further setbacks to the economic recovery could come in 2H of CY22 amid the continuation of China’s covid-19 policy. To note, Fitch has already reduced China’s growth forecast to 3.7% in its latest update.
Fitch has also conducted an analysis on relative vulnerabilities in global mortgage and housing markets to rising rates which shows that consumer confidence has fallen amid sustained inflation and housing activity is showing signs of slowing amid materially higher interest rates.
