Credit rating agency Fitch Ratings has downgraded its growth forecast for the global economy. Fitch concludes that while global growth will be dismally sluggish, the world should avoid a recession this year. Fitch is one of three nationally recognized credit ratings agencies along with Moody’s and Standard & Poor’s.

Fitch now sees growth in global GDP of 2.5% in 2016, down from its previous forecast in December of 2.9%. The ratings agency now forecasts growth of 1.7% in advanced countries in 2016, down from 2.1% in its December report. For emerging countries, which now make up 40% of global GDP, Fitch sees growth of 4.0%, down from 4.4% in December. Fitch noted:

“While the biggest [downward] revisions have been to emerging market commodity producers – namely Brazil, Russia and South Africa – there have also been sizable revisions in advanced economies. The breadth of the revisions is notable; however, it still leaves the growth outlook considerably above global recession territory.”

Fitch cited the continued slowdown in the Chinese economy, and hence falling investment in China, along with broad spending cuts in commodity-producing countries, as the major reasons for its latest downward revision in its global growth forecast. It added:

“The collapse in commodity prices has presented commodity exporters in the emerging world with a huge income shock. This has uncovered hitherto disguised macroeconomic vulnerabilities in Brazil and forced severe expenditure compression across the commodity-producing world, as pressures mount to close fiscal and current account deficits.”

Fitch noted that labor market conditions in many of the major advanced countries are looking “quite robust” as is the case in the US. This, along with the benefits of lower oil prices on real incomes, should support consumer spending in rich countries and cushion the shock from commodity-producing nations.

Fitch also revised its forecasts for oil prices this year and next. Fitch predicts that Brent oil will average $35 per barrel in 2016 and $45 in 2017 – the equivalent of West Texas Intermediate prices of $32 and $42 respectively this year and next.

As for specific countries, Fitch believes that China will avoid a hard landing in 2016 and predicts that growth will average 6.2% this year. Fitch forecasts that Russia will fall into recession this year, due to low oil prices, with its economy contracting by -1.5% for all of 2016.

In Brazil which is already in recession Fitch revised its economic forecast from -2.5% in December to -3.5%. It also lowered its growth forecast for South Africa to 1.0%, down from 1.7% in December.

As for the US, Fitch left its 2016 forecast unchanged at 2.5%, about the same as in 2015 and 2014.

The bottom line is that Fitch expects the global economy, while slowing from earlier estimates, to avoid a recession this year with average GDP growth of 2.5%. The US Conference Board also forecasts global growth of 2.5% for 2016. Obviously some forecasters disagree and believe that a global recession is very likely later this year. We’ll see.

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