In the advanced countries, the near-term outlook for growth has improved despite persistent political uncertainties. "Robust labour markets and consumer spending, more supportive fiscal policies and the stabilisation in emerging markets helped advanced country growth recover in the second half of 2016," said Brian Coulton, Chief Economist, Fitch. "Furthermore, a synchronised improvement in manufacturing business surveys across the advanced countries suggests growth momentum has continued into early 2017."
The acceleration in advanced country growth is led by the US, with growth in the eurozone and Japan expected to remain broadly stable. "While there is genuine upside to the near-term outlook - stemming primarily from a faster-than-expected easing of US fiscal policy and the possibility of animal spirits sparking a more rapid US private investment recovery - downside risks also loom large," added Coulton.
An aggressive pursuit of protectionist trade policies by the new US administration could spark retaliation and global currency volatility, undermining business confidence. Longer term, if the US were to shift to a more producer-focussed or 'mercantilist' model, with the aim of permanently shrinking trade deficit, it is hard to see who else would step in to fill the gap in global demand. Ultimately, the US has been the world's consumer of last resort for decades with many countries' economies geared to supplying US demand.
Improving growth prospects and increased fiscal policy support are moving the world economy further away from the scenario of 'never-ending' quantitative easing by the major central banks. Fitch now expects the US Fed to raise rates three times this year (up from two hikes in Fitch's November forecast) and by a total of seven times over 2017 and 2018. This is in stark contrast to just two hikes over the previous eight years.
For emerging market, the report says, growth prospects are slightly weaker than previously forecast, with downward revisions to Mexico, Turkey and Brazil. There are also signs of a shift in the policy stance in China, where the 2017 growth forecast has been edged down slightly to 6.3 per cent.
The report projects India to retain the 'fastest-growing economy of the world' tag for some more time, as the country is expected to grow at 7.7 per cent in FY2018 compared to China's projected growth of 6.3 per cent for calendar year 2017. (RKS)
Fibre2Fashion News Desk – India
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