It said China’s GDP would slow to 7% next year – down from its former prediction of 7.5% – while India would grow at 4.8% this year and 5.8% in 2014.
Fitch said higher interest rates and less buoyant capital inflows would complicate policy trade-offs in many emerging markets, adding to pressure caused by “domestic structural bottlenecks”, declining returns on investment and an economic rebalancing in China.
In its newly published Global Economic Outlook (GEO), Fitch said its forecast global GDP figures shrank from 2.4% – as released last quarter – to 2.3%, 2.9% in 2014 – down from 3.1% and 3.2% in 2015.
Gergely Kiss, director in the sovereign team at Fitch, said short-term policy rates were expected to remain low for the next two years, while the prominent rise in longer-term yields and risk premiums on certain asset classes seen this year suggested further volatility was on the horizon, caused by loosening monetary policy.
“In particular, tighter global funding conditions will add to headwinds facing EMs, particularly those dependent on capital inflows," he added.
As the eurozone crept out of the recession, Fitch said growth would recover in the second half of 2013, with GDP in the ‘major advanced economies’ to rise from 1.8% next year to 2% in 2015.
It said recovery would be driven by the recovery in the housing market, improved household balance sheets, rising employment and strong corporate profitability.
“However, a renewed fiscal squeeze or political standoff over the debt ceiling and rising interest rates represent downsize risks,” he said.
