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Fitch Ratings expects US economy to slow in H2 2022, 2023

11 Jul '22
3 min read
Pic: Shutterstock
Pic: Shutterstock

Fitch Ratings recently said it expects the US economy will slow in the second half of this year and over the course of 2023, with below trend growth of 1.5 per cent in 2023 and 1.3 per cent in 2024. Fitch's 2022 and 2023 annual average inflation forecasts have risen to 7.8 per cent and 3.7 per cent respectively.

Fitch expects a growth of 2.9 per cent in 2022 in the country, driven by consumption underpinned by continued labour market strength with solid growth in both employment and nominal wages.

The rating agency recently affirmed the United States’ long-term foreign currency issuer default rating (IDR) at 'AAA', and has revised the rating outlook to stable from negative. The outlook revision to stable reflects the improved near-term government debt dynamics driven by the strong post-pandemic economic recovery and buoyant government revenues.

Fitch expects government revenues to grow by 19 per cent in 2022, propelled by strong personal and corporate income taxes.

Fitch has substantially improved its fiscal and debt projections since its last review. It now forecasts a decline in the general government debt ratio to 113 per cent of the gross domestic product (GDP) at  2022 end from 118 per cent in 2021 (and a peak of 123 per cent in 2020) before beginning to rise again at a gradual pace in 2024.

Fitch considers US debt tolerance to be higher than that of other 'AAA' sovereigns, it said in a release.

A stronger-than-expected economic recovery has led public finances to outperform Fitch's expectations at the last review, generating higher tax revenues while most pandemic-related spending has wound down.

Fitch forecasts a general government deficit at 5 per cent of GDP, down from an estimated 10.2 per cent of GDP in 2021. State and local governments continue to perform well, and could result in an even lower general government outturn.

Headline consumer price inflation rose to 8.6 per cent YOY in May, the highest rate since the early 1980s, driven by service inflation and a jump in food price inflation. Russia's invasion of Ukraine has increased commodity prices, especially oil prices, while the lockdowns in China have exacerbated supply chain issues and pressured core goods prices.

Fitch now expects the US Federal Reserve to hike rates at a more aggressive pace to restrictive levels after hiking rates by 75 basis points at its June meeting. The agency expects the Fed to hike rates at each of the next three meetings to 3 per cent by the year end. It expects further hikes in the first quarter of 2023, reaching 3.5 per cent and remaining at this level through 2024.

Fibre2Fashion News Desk (DS)

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