US Slowdown Looms Amid Delicate Political, Geopolitical Uncertainty –Fitch
US rate rises in 2023 have begun to show some effect on the labour market and demand, while politics remains an area of high uncertainty, and geopolitical risk is here to stay, Fitch Ratings says in a new report.
Signs of a slowdown in the US are evident in weak credit growth and slowing consumer spending, the report stated.
This should continue in second half of 2024 (2H24) with headline: real gross domestic product (GDP) growth materially decelerating though clearly remaining well above recession territory in Fitch base-case forecasts.
The global ratings agency said continued disinflation and the beginning of a global monetary policy pivot have reduced the probability of a major negative credit risk scenario stemming from continued monetary tightening.
The European Central Bank (ECB) made its first rate cut in early June, following earlier moves by the Swiss National Bank and Bank of Canada, with the latter cutting for the second time in late July.
“While we now expect a slightly slower pace of rate cuts in 2024 from the Federal Reserve than our expectations at end-2023, the latest US inflation and labour market data support our view that two reductions are likely in 2H24”.
Fitch said politics is an area of high uncertainty, as demonstrated in the string of elections in large economies in 2Q24 and early July, including France, the UK, India, Mexico and South Africa, as well as for the European Parliament.
The firm noted that incumbents lost ground or lost outright in all elections but Mexico. The forthcoming US election in November will be particularly relevant for global credit as it could mark a pivot point for policy in several important areas.
“Wars in Ukraine and between Israel and Hamas have continued as have simmering tensions in other hotspots. The broader context of geo-strategic friction between major powers remains a key long-term theme.
“The greatest risk to credit would come from a direct conflict in one of these hotspots”.
Fitch said broader geopolitical tensions are likely to continue to feed into such diverse areas as trade and investment policies, capital flows, supply chains and foreign direct investment (FDI). Italy’s CDP, AfDB to Invest €400m in Africa’s Private Sector
