SINGAPORE, Mar 20, 2020, BT. Fitch Ratings has “aggressively lowered” its global economic forecasts, with its global growth forecast nearly halving to 1.3 per cent for 2020, from 2.5 per cent in its December 2019 global economic outlook, The Business Times reported.
Global growth was 2.7 per cent in 2019, making the drop weaker than during the global downturns in the early 1990s and 2001, the credit ratings agency said.
Fitch’s revision comes as emergency macroeconomic policy responses mount on a massive scale in response to the novel coronavirus pandemic, following a similar playbook in a global financial crisis.
Policy responses include aggressive interest rate cuts, huge injections of central bank liquidity, macro-prudential easing and the creation of credit support facilities.
Large-scale fiscal easing packages and the announcement of hundred billion dollar-scale sovereign credit-guarantee schemes are also being used to help the private sector withstand shocks from measures necessary to contain the health crisis.
Brian Coulton, chief economist at Fitch Ratings, said rapid and large-scale macro policy responses are all about damage limitation in the near term. That said, policy easing should help gross domestic product (GDP) normalise and recover quickly in the second half of the year, assuming the health crisis subsides, he added.
“However, the uncertainties here are huge and we are really only at the beginning of the process of trying to understand the full impact of the crisis on the world economy,” he said.
The forecast revision leaves the credit ratings agency’s global GDP forecast US$850 billion lower than the previous forecast.
If more pervasive lockdown measures roll out across all G-7 economies, an outright decline in global GDP could be “very easily” seen, Fitch said.
“The interruptions to economic activity seen in China – and now in Italy – are on scale and speed rarely seen other than during periods of military conflict, natural disasters or financial crises,” the report noted.
In a full lockdown scenario, GDP quarterly declines of 3 per cent to 5 per cent – which are not annualised – are also feasible.
On Thursday, Fitch said there will likely be a higher-than-average number of sovereign rating actions this year, due to the novel coronavirus outbreak’s economic impact combined with policy responses.