International credit ratings agency Fitch Ratings has made further cuts to world GDP forecasts in its latest Global Economic Outlook (GEO), but indicated that the slump in global economic activity is close to bottom. Accordingly, the world GDP is forecast to fall by 4.6 percent in 2020 compared to a decline of 3.9 percent estimated in late April, reflecting downward revisions to the euro zone and the UK and, most significantly, to emerging markets excluding China. The agency stated, “Our downside scenario sees GDP falling by 12 percent in the US and Europe in 2020 and global GDP down by more than 9 percent.” A resurgence of the virus that necessitated greatly extended nationwide lockdowns would lead to an even worse outcome.
Fitch expects euro zone GDP to fall by 8.2 percent in 2020, reflecting the larger-than-anticipated falls in activity in France, Italy and Spain amid stricter lockdowns. The agency anticipates GDP to fall by 9.6 percent in Spain, 9.5 percent in Italy and 9 percent in France in 2020. The lockdown in the UK will last longer than previously assumed, and thus the economy is expected to contract by 7.8 percent this year.
Forecasts for 2020 GDP growth for China (0.7%), the US (-5.6%) and Japan (-5%) are unchanged compared to previous estimates. The output in emerging markets excluding China is expected to fall by 4.5 percent this year compared to a predicted fall of 1.9 percent before, while the biggest cut was to India with an expected GDP fall of five percent compared to an earlier forecast of growth of 0.8 percent.
A number of early monthly economic indicators for May have improved slightly on their April values and consumer visits to retail and recreation venues have increased in the euro zone and the US since lockdowns started to be eased in late April/early May. China's recent experience suggests that activity will rise after lockdowns are eased. Industrial production is now back to December 2019 levels and fixed asset investment and credit growth are rising.
“We foresee a ‘technical’ pick-up in global GDP growth to 5.1 percent in 2021 - with US and euro zone output rising by around 4 percent - but pre-virus levels of GDP are unlikely to be reached until mid-2022 in the US and significantly later in Europe. This is despite massive policy stimulus,” said Brian Coulton, chief economist, Fitch Ratings.