Rating agency Fitch cuts global growth forecast, sees RECESSION in UK & US close

European wholesale gas and electricity prices have risen nearly tenfold. Fitch now expects world GDP to grow by 2.4% in 2022 - revised down by 0.5 percentage point since the June estimate - and by just 1.7% in 2023, a cut of 1% point.

The European gas crisis, high inflation and the pace of global monetary policy tightening are taking a heavy toll on economic prospects, rating agency Fitch Ratings` September 2022 Global Economic Outlook (GEO) said.

European wholesale gas and electricity prices have risen nearly tenfold. Fitch now expects world GDP to grow by 2.4% in 2022 - revised down by 0.5% point since the June estimate - and by just 1.7% in 2023, a cut of 1% point.

The eurozone and UK are now expected to enter recession later this year and the global rating agency forecasts that the US will suffer a mild recession in mid-2023.

"We`ve had something of a perfect storm for the global economy in recent months, with the gas crisis in Europe, a sharp acceleration in interest rate hikes and a deepening property slump in China," said Brian Coulton, Chief Economist.

Fitch expects the eurozone economy to contract by 0.1% in 2023 - a drop of 2.2% point since June reflecting the impact of the natural gas crisis.

It expects the Indian economy to grow at 7% in the financial year to end-March 2023 from the previously estimated 7.8%, with 2023-24 also slowing to 6.7% from 7.4% estimate. In the US, growth is seen at 1.7% in 2022 and 0.5% in 2023, revised down by 1.2% point and 1% point, respectively.

"China`s recovery is constrained by Covid-19 pandemic restrictions and a prolonged property slump, and we now expect growth to be 2.8 per cent this year and to recover to 4.5 per cent next year, downward revisions of 0.9 pp and 0.8 pp, respectively," the agency said in a statement.

Despite EU efforts to find alternatives, it said total EU gas supply will fall significantly in the near term, with impacts felt through industrial supply chains. In the backdrop of high inflation, central banks such as the US Fed, Bank of England (BOE) and ECB turned more hawkish in recent months and policy rates were increased much more rapidly than expected.

The rating agency said the US Fed is now expected to take rates to 4% by year-end and hold them there through 2023; the ECB refinancing rate is expected to rise to 2% by December, and the BOE Bank Rate is forecast to reach 3.25$ by February 2023. Raising interest rates is a monetary policy instrument which typically helps in suppressing demand in the economy, thereby helping inflation rate to decline.