The downside risks surrounding the forecast of positive global growth in 2010 have diminished in the past three months, Fitch Ratings said.
It said the world activity is forecast to expand by 1.4 per cent next year, unchanged from its previous forecast, with an upward revision to United States growth offset by a downward revision to the euro area.
The world economy "appears to be close to the trough of the recession… The last three months have seen the emergence of significant signs of stabilisation, most notably in the banking sector and in a widespread recovery in financial markets, but also in business and consumer sentiment. This reflects the growing recognition that massive and coordinated macro?economic and financial sector policy responses should gain traction in mitigating the severity of the deleveraging process and drive a return to positive growth rates in the second half of 2009", it said.
The agency's study said that one of the most significant "green shoots" has been the increasing ability of banks in recent weeks to access term funding without sovereign guarantees, a development which points to declining fears of counterparty risk among banks as reflected in the narrowing of spreads between three-month inter?bank lending rates and policy rates to below 'pre–Lehman' levels.
This has been accompanied by a widespread rally in major credit and equity markets since February, an increase in corporate bond issuance, a narrowing of emerging market sovereign bond spreads and a decline in risk aversion indicators. Business sentiment surveys have also picked up since the start of the year, although optimism balances remain below levels reported in the first half of 2008. Consumer confidence has also recovered with the notable exception of Germany.
The US GDP will grow by 1.3 per cent in 2010, an upward revision of 0.3 per cent, as the impact of fiscal stimulus spending starts to be felt. The US is expected to post positive growth from this quarter.
Unemployment has risen to 9.4 per cent from around five per cent at the end of 2007 and is expected to continue rising to a peak of 10.6 per cent by the middle of next year. GDP in the euro area is expected to decline by 4.6 per cent in 2009, a much sharper fall than the 3.2 per cent forecast in March.
Moreover, GDP is expected to decline again in 2010 with both Germany and Spain experiencing two years of negative growth. The German economy has been hit particularly hard by the decline in global trade and exposure to eastern Europe is significant, while consumer sentiment remains weak. There was a huge decline in GDP in Japan in the four quarter of 2008 and Q1 2009, but there is likely to have been a stabilisation in activity in Q2 2009.
However, the outlook for private domestic demand is poor as real wages are falling and unemployment is rising quickly. Trade prospects are also weak following the sharp appreciation of the yen in the second half of 2008.
The United Kingdom's economy is likely to benefit positively from the inventory cycle in the near term and should see a return to positive growth in Q3 2009. However, final private demand is set to continue falling until early 2010 and GDP growth will be just 0.8 per cent next year. Unemployment is likely to peak at close to 10 per cent in late 2010.
The Bric countries (Brazil, Russia, India and China) as a whole will grow by 3.3 per cent this year with both Brazil and Russia expected to see negative growth.
However, China's policy measures should help support growth of 6.5 per cent this year - an upward revision from 5.6 per cent - and a recovery to 8.2 per cent in 2010.
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