Fitch slashes global growth forecast on weaker emerging market outlook

 
Chris Papadopoullos
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The world economy isn't doing so well at the moment... (Source: Getty)

The world economy will be weighed down by further turmoil in key emerging markets this year, a major ratings agency said today.

Fitch has slashed its global economic growth forecast with advanced economies expected to grow 1.7 per cent this year, down from the 2.1 per cent forecast in December. Emerging market economies are expected to grow four per cent, down from 4.4 per cent.

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Russia has been downgraded by two percentage points – Fitch expects its economy to contract 1.5 per cent this year. Lower oil prices and the government's move to tighten the purse strings are expected to hit the energy exporter. The central bank may also adopt a cautious attitude toward cutting rates as it looks to build credibility around its four per cent inflation target.

"The investment slowdown in China and sharp expenditure compression in major commodity producing countries continue to reverberate around the world economy," said Brian Coulton, chief economist at Fitch.

"With emerging markets at the epicentre of these shocks and now accounting for 40 per cent of world GDP it is legitimate to ask whether the world will see, for more or less the first time in recent history, an emerging market led global recession. However, we believe several factors mitigate this risk," Coulton added.

Read more: Brazil's economy shrinks 3.8 per cent in 2015

Strong labour markets advanced economies such as the US and UK are expected to mitigate the risks of slower growth. Fitch's UK growth forecast for this year has edged down to 2.1 per cent from 2.2-2.3 per cent. Household spending is expected to be the main growth driver.

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