Fitch downgrades BRIC nations but forecasts a pick up in global GDP fuelled by US and eurozone

Ratings agency Fitch has cut its outlook for all four BRIC nations (Brazil, Russia, India and China), saying that 2012-13 will be the second weakest growth there (after 2009) since the 1998 Russian crisis.

In its global economic outlook report, Fitch said it expects the global economy to strengthen gradually in the second half of the year and in 2014 and 2015, thanks to pick ups in the US (where the housing recovery, strong corporate profitability and loose monetary policy is driving growth against tax increases and spending cuts) and the eurozone (where a cyclical upturn is expected, although problems remain). World GDP estimations are 2.4 per cent in 2013, 3.1 per cent in 2014 and 3.2 per cent in 2015 (weighted at market exchange rates).

Its expectations for the BRIC nations and emerging markets, however, are not so optimistic. Brazil, Russia and India will grow by a respective 1.1 per cent, 1.7 per cent and 0.8 per cent. China will grow by 7.5 per cent in 2013 (down from eight per cent in the March prediction) and 2014, followed by a fall to seven per cent in 2015.

Gergely Kiss, director in Fitch's sovereign team, said:

Several of the largest emerging markets are experiencing strains from spill-overs from advanced economies and China, difficult policy trade-offs, a declining impact from credit growth and structural bottlenecks. Therefore growth differentials will narrow between advanced economies and emerging markets over the forecast horizon.

Nevertheless, emerging markets growth will still far outstrip growth in the major advanced economies, where forecasts are for a weak growth of 0.9 per cent this year, rising sharply to 1.9 per cent in 2014 and 2.0 per cent in 2015. By comparison, emerging markets will grow by 4.8 per cent in 2013 and 5.2 per cent in 2014/15.

In the UK, Fitch "maintains its expectations of a modest and gradual recovery in the UK" with growth forecasts unchanged at 0.8 per cent, 1.8 per cent and two per cent in the three years to 2015.

Progress with balance sheet adjustment of the private sector, including the reduction in the household debt to income ratio, and the prolonged period of accommodative monetary policy stance will gradually translate into strengthening of private demand. However, fiscal consolidation will remain a drag on the economy over the medium term.