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Global Economic Outlook –

June 2019
Tariff War Getting Serious
Highlights
• Sharp rise in growth risks from further trade
war escalation

• World growth forecast for 2020 cut, even


assuming no escalation

• US business investment outlook deteriorating

• China growth yet to stabilise; sluggish


domestic demand

• Eurozone growth prospects still very weak, but


no recession

• Monetary policy won’t fully offset trade shocks

• EM exc. China forecasts lower despite easier


global liquidity

• New US tariffs on USD300 billion China


imports would cut world GDP by 0.4pp

www.fitchratings.com | June 2019


Global Forecast Summary
Annual Average
(%) 2014-2018 2018 2019f 2020f 2021f
GDP Growth
US 2.4 2.9 2.4 1.8 1.7
Eurozone 1.9 1.9 1.2 1.3 1.2
China 6.9 6.6 6.2 6.0 5.8
Japan 1.0 0.8 0.8 0.5 0.6
UK 2.1 1.4 1.4 1.5 1.8
Developed a 2.0 2.1 1.8 1.5 1.5
Emerging b 4.8 5.1 4.5 4.8 4.9
World c
3.0 3.2 2.8 2.7 2.7

Inflation (end of period)


US 1.5 1.9 2.2 2.3 2.5
Eurozone 0.8 1.5 1.3 1.4 1.5
China 1.8 1.9 2.8 2.2 2.1
Japan 1.0 0.3 1.5 0.8 1.1
UK 1.5 2.1 2.4 2.5 2.2

Interest Rates (end of period)


US 0.83 2.50 2.50 2.75 3.00
Eurozone 0.05 0.00 0.00 0.00 0.00
China d
4.78 4.35 4.35 4.35 4.35
Japan -0.02 -0.10 -0.10 -0.10 -0.10
UK 0.46 0.75 0.75 1.00 1.25
US 10 Year Yield 2.39 2.83 2.70 3.20 3.40

Exchange Rates and Oil


Oil (USD/barrel) 64.8 71.6 65.0 62.5 60.0
USDJPY (end-period) 111.6 109.7 110.0 112.0 112.0
USDEUR (end-period) 0.86 0.87 0.88 0.88 0.88
GBPUSD (end-period) 1.43 1.27 1.25 1.25 1.25
USDCNY (end-period) 6.49 6.87 7.00 7.20 7.20
a
US, Japan, France, Germany, Italy, Spain, UK, Canada, Australia and Switzerland.
b
Brazil, Russia, India, China, South Africa, Korea, Mexico, Indonesia, Poland and Turkey.
c
‘Fitch 20’ countries weighted by nominal GDP in USD at market exchange rates (3 year average)
d
One year policy lending rate
Source: Fitch Ratings

www.fitchratings.com | June 2019 3


Collateral Damage
Threats to the global growth outlook from trade protectionism have
become much more significant in recent months. The breakdown of
US-China trade negotiations, the US Section 232 investigation into
auto imports, the recent use of a US tariff threat to pressure Mexico
to change migration policies, and the rising chance of a no-deal
Brexit all raise the possibility of disruptions to global trade that could
have a much bigger impact on the world economy than anything
seen over the course of 2018.
There is insufficient clarity on policy intentions at this stage to
factor a major further escalation in protectionism into our baseline
GEO forecasts. For the time being, we assume that trade tensions
are contained at current levels and that US tariffs on the remaining
USD300 billion of Chinese imports and on autos, and a no-deal
Brexit, are avoided. But the related increase in uncertainty is already
affecting our assessment of prospects for business investment.
This is a factor behind the downgrade to our baseline global growth
forecast for 2020 to 2.7% from 2.8% despite generally better-than-
expected incoming activity data since the last GEO and still robust
labour market conditions in advanced economies supporting
consumers. Persistent weakness in Chinese consumer spending is
also weighing on the outlook. Increased downside risks to growth will
persuade central banks to adopt a more accommodative monetary
policy stance than previously expected, but they are unlikely to be able
or willing to fully offset the impact of trade policy shocks on growth.
In the event that the US does impose the new tariffs and China
retaliates, we foresee a 0.4pp reduction in world GDP in 2020 relative
to our baseline. Global growth would fall to 2.4% in 2020 even allowing
for a monetary policy easing response. While falling short of a global
recession, this would be the weakest global growth rate since 2009 and
slightly worse than 2012, when the eurozone sovereign debt crisis was
at its peak. US auto tariffs and a no-deal Brexit would amplify the shock
significantly and take a much bigger toll on the eurozone.

World Export Volumes


20

15

10
(% yoy, 3m.m.a.)

-5

-10

-15

-20
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Source: Fitch Ratings, CPB Dutch Policy Bureau

www.fitchratings.com | June 2019 4


Revisions to Fitch GDP Growth Forecasts
Uncertainty Already Weighing on Outlook
2019 2020 The recent increase in US tariffs to 25% from 10% on a list of
(Revisions since Mar '19 GEO, p.p.)

0.4 approximately USD200 billion of imports from China was already


0.2 factored into our earlier GEO projections and as such is not “news”
0.0 for this forecast. In combination with better-than-expected
-0.2 outturns for 1Q19 GDP for the US, China, the eurozone, Japan
-0.4 and the UK, this helps explain why our 2019 global GDP forecast
-0.6 is unchanged from the March GEO at 2.8%. This is, nevertheless,
-0.8 a significant slowdown from 2018. Moreover, our forecasts for
-1.0 sequential growth through 2Q19 to 4Q19 have been reduced for
-1.2 the biggest economies.
Japan

Switzerland

Poland
South Korea

Russia
India (FY)
Brazil

Germany

Italy

United Kingdom
World
South Africa
Mexico

United States
Indonesia

DM
China
Australia

EM
France

Turkey

Spain

Eurozone
Canada

And in contrast to the largest advanced economies and China,


1Q19 GDP outturns for other emerging markets (EMs) were
generally disappointing. GDP fell in seasonally adjusted terms in
Brazil, Mexico, South Africa and Korea, and annual growth rates
Source: Fitch Ratings
were significantly weaker than expected in India and Russia – only
Turkey and Poland saw a better-than-expected performance. Within
our unchanged aggregate annual global GDP growth forecasts
Capital Goods Orders - US, Euro area and Japan for 2019, we have made small upward revisions to the eurozone,
China, the US, Japan and the UK but sizeable downward revisions
6 to Brazil, South Africa, Mexico, Korea, Russia, Australia and Canada.
(%, yoy, 3m.m.a., weighted average)

5 A trend becoming much clearer in the data is the deterioration


4 in prospects for business investment, which is highly likely to be
3 associated with rising trade uncertainties. Global growth is now
projected at 2.7% in 2020, 0.1pp lower than in the March GEO,
2
with forecasts cut for the US, China, the UK, Australia, Mexico and,
1
most significantly, Brazil. This GEO also includes, for the first time,
0 forecasts for 2021, which show global growth steady at 2.7% as
-1 the US and China slow further but EM exc. China growth recovers.
-2
-3 Global Manufacturing Slump Continues
2011

2012

2013

2014

2015

2016

2017

2018

2019

The sharp slowdown in global manufacturing at the end of last


Source: Fitch Ratings, ECB, Cabinet Office Japan, US Census Bureau, year has continued over the last few months. World industrial
Datastream, Haver Analytics production growth has now fallen below 1.5% yoy, the lowest rate
since late 2015/early 2016 when the slump in oil prices prompted
expenditure retrenchment in commodity-producing countries and
Purchasing Managers' Indices - Manufacturing by global energy firms. Manufacturing PMI surveys have remained
below 50 in the eurozone and have recently fallen sharply in the US
(Diffusion China Eurozone US
and the UK. China’s official measure also fell back below 50 in May
balance)
62 after a short-lived recovery in March and April.
60 Several factors lie behind the manufacturing downturn, including
58 the simple fact that cyclical swings in China are having a bigger
56 and bigger impact on global industrial production. But two specific
54 factors are worth highlighting. First, the deterioration in business
52 investment prospects is curtailing demand for capital goods –
50 capital goods orders have slowed sharply since last summer in the
48 US, the eurozone and Japan. Second, the global car market remains
46 in the doldrums. The auto sector has a particularly large multiplier
44 impact on other industries through supply-chain linkages and is a
key driver of the global manufacturing cycle (as discussed in the
2011

2012

2013

2014

2015

2016

2017

2018

2019

recent Fitch report, Cars and the World Economy).


Source: Fitch Ratings, IHS Markit, Bloomberg, Haver Analytics

www.fitchratings.com | June 2019 5


With downgrades to our forecasts for business investment in the
China - New Car Sales US and China and world car demand expected to be broadly flat
this year – after declining in 2018 for the first time in nine years –
120 global industrial production growth is likely to remain weak. This,
100 in turn, implies that growth in world merchandise trade is unlikely
to recover significantly, even without a further escalation in tariffs.
(% yoy, 3m.m.a.)

80 Capital goods and autos are highly integrated global industries


with strong international supply-chain linkages. Sluggish growth
60
in world trade and industrial production has historically been
40 associated with weak GDP growth in EMs exc. China. Germany’s
economy is also highly exposed to global manufacturing and trade.
20

0 US – Investment Outlook Darkening


-20 The impact of the global slowdown on the US economy has become
more evident in recent months. Export growth has fallen sharply since
1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

October and has now ground to a halt on a year-on-year basis. While


Source: Fitch Ratings, CAAM, Datastream the slowdown has been fairly broad-based, with exports to the rest
of NAFTA, South America and Asia exc. China all slowing markedly,
the biggest decline by far has been in exports to China. Exports to
US Export Growth China were down 20% yoy in April. The size of this fall may have been
Total to China amplified to some extent by front-loading of US exports to China in
60 early 2018 in anticipation of retaliatory Chinese tariffs. But the overall
50 scale of the decline – which exceeds that at the peak of the global
(Nominal, % yoy, 3m.m.a.)

40 financial crisis – and the gap with total US export growth point to
30 a clear impact from the trade war. China has imposed retaliatory
20 tariffs on USD101 billion of US imports (out of total of US imports
10 of USD130 billion in 2017) at rates of between 10% and 25%. The
0 20% fall suggests that Chinese importers’ substitution away from US
-10 suppliers may have gone beyond a pure price effect.
-20
The deceleration in exports has had spillovers to US industrial
-30
production, albeit with a lag. After holding up well through to the
-40
end of 2018, industrial production has slowed sharply this year with
2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

persistent weakness over several months pointing to more than


just noise in the data. Moreover, the recent weakness has been
Source: Fitch Ratings, US Census Bureau, Haver Analytics
corroborated by numerous manufacturing business surveys.
The manufacturing downturn also reflects a weakening outlook for
US Industrial Production business investment and the knock-on impact on weaker demand
for capital goods. US business investment grew by nearly 7% in 2018,
(%) yoy 3m/3m annualised the fastest rate for four years, but slowed to just over 2% annualised
15
in 1Q19. Capital goods orders and the Philadelphia Fed survey of
manufacturers’ capex intentions are good leading indicators of
10
business investment and both have deteriorated in recent months.
5 Given that capacity utilisation rates are still quite elevated, labour
0 resources are becoming scarcer and corporate sector finances in
-5 aggregate still look quite healthy, the decline in business investment
-10 prospects speaks to the influence of the global slowdown and
increased policy uncertainty. We have lowered forecasts for US
-15
private investment for both 2019 and 2020.
-20
Other components of domestic demand look more resilient to global
-25
risks. Consumer spending continues to expand at a 2% annualised
2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

rate, albeit down from an average of 2.5% over the last couple of
Source: Fitch Ratings, Fed, Haver Analytics years. Employment continues to expand at around 1.3% and wage

www.fitchratings.com | June 2019 6


growth is close to 3%, supporting household income. Moreover, the
Economic Policy Uncertainty - Global improvements in household balance sheets in recent years and a
(Index)
relatively high saving ratio suggest some scope for consumption
350 smoothing. The benefits from income tax cuts are now fading but
fiscal policy will continue to boost growth through the rest of this
300
financial year and is unlikely to be tightened materially in 2020.
250 Along with a more accommodative outlook for monetary policy and
credit conditions than we were previously anticipating, it still seems
200
most likely that the US economy will see a slowdown over the next
150 year rather than a sharp correction.
100
Eurozone – Weak Growth, But No Recession
50
The eurozone economy remains weak but recent data lend support to
0
our view that recession will be avoided, partly thanks to robust private-
1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

sector finances in the largest economies following deleveraging


progress in recent years. The latter mitigates the risk of external
Source: Fitch Ratings, Economic Policy Uncertainty, Datastream
shocks being amplified by private-sector balance sheet vulnerabilities.
Incoming data have confirmed that some of the sharp weakening in
activity in late 2018 reflected temporary factors, and we have edged
Eurozone: Household and Corporate Loans
our 2019 growth forecast back up slightly after the large cut made in
Household Loans
the March GEO.
(% yoy) Corporate Loans
5 Nevertheless, weakness in global trade, amid growing uncertainty, has
4 weighed heavily on the manufacturing sector, hurting in particular
3 countries such as Germany where trade openness is larger and
2 exposure to China, EMs and global auto demand is greater. Weaker
1 demand for eurozone exports from Turkey and the UK was largely
0
responsible for the sharper-than-expected slowdown in 2H18, and
-1
continues to be a drag. External headwinds are unlikely to dissipate
any time soon given the escalation of trade tensions between the US
-2
and China, the possibility of US tariffs on European autos later this year,
-3
and the continued uncertainty about when and in what way the UK
-4
2011 2012 2013 2014 2015 2016 2017 2018 2019 will leave the European Union. The composite PMI stagnated in May,
edging up to 51.8 from 51.5 in April, and is consistent with sequential
* adjusted for reclassification
Source: Fitch Ratings, ECB, Haver Analytics growth slowing from the 0.4% rate recorded in 1Q19. The general
weakness in survey data suggests an ongoing lack of confidence
among eurozone businesses and fragility in the months ahead.
China - Credit Growth At the same time, some key components of domestic demand are
Aggregate Financing exc. Equty plus Local Government
showing resilience with investment and consumption showing a decent
(% yoy) Bonds expansion in 1Q19, the latter supported by a rebound in consumption
26 in Germany following disruption to car purchases in late 2018. The
24
services and construction sectors look relatively robust and labour
market conditions continue to improve, even if the rapid pace of job
22
gains recorded last year appears to be slowing somewhat, particularly
20 in the manufacturing sector. Domestic demand will remain supported
18 by favourable financing conditions, further employment gains, rising
16
wages and a mildly expansionary fiscal stance. Bank lending data show
that annual loan growth to non-financial corporations and households
14
improved in May. At the national level, lending growth continued at a
12 strong pace in Germany and France, growing above 6%, but contracted
10 in Italy. In the most recent bank lending survey (April), eurozone banks
2011 2012 2013 2014 2015 2016 2017 2018 2019 reported broadly unchanged conditions on loans to enterprises but
Source: Fitch Ratings, NBS, PBOC, Datastream some tightening on housing loans.

www.fitchratings.com | June 2019 7


China - Export Growth
China – Demand Still Sluggish
China’s GDP growth exceeded our expectations by quite a margin
(% yoy, Volumes Value in 1Q19, raising the possibility that earlier policy easing had gained
3m.m.a.)
50
more traction than anticipated in supporting growth. However,
subsequent data and a broader assessment of activity indicators
40
support our view that growth will fall further before stabilising. This
30 is commensurate with a more restrained policy response than in
20 previous easing episodes and the peak impact of recent US tariff
10
measures on exports lying ahead.

0 Domestic demand growth remains quite sluggish. Consumer


indicators have been weak across the board – including retail sales, car
-10
registrations and urban and rural consumption per capita – and rising
-20 food prices are creating new headwinds for household real incomes in
-30 the near term. Fixed asset investment has only picked up marginally
2006 2008 2010 2012 2014 2016 2018 since late 2018 despite improving infrastructure investment. This
Source: Fitch Ratings, China Customs, Datastream partly reflects rising trade uncertainties, which have prompted a sharp
downturn in manufacturing investment since late 2018. But it also
reflects the fact that credit-based stimulus has been less aggressive
EM Bank Lending Conditions and USD Credit than in previous periods of policy easing. Credit growth has risen by
less than 1pp since late 2018 compared to several percentage points
(Index, <50
(% yoy) = tightening) in policy easing episodes in 2012 and 2015.
USD Credit to Emerging Markets
EM Bank Lending Conditions Survey (RHS) Moreover, the drag from US tariff actions is likely to intensify after
18 58
the recent increase in tariffs on USD200 billion of goods to 25%
15 56
from 10%. There is now clear micro-based evidence that earlier US
12 54 tariffs did lead to a rise in the price of Chinese imports in the US and
9 52
that import volumes subsequently responded negatively. The US
accounts for around 20% of China’s total exports, and exports to the
6 50 US were already down 10% yoy in the first five months of this year.
3 48
The recent US tariff increase and the impact of the escalation in
0 46 the trade war on domestic confidence are likely to prompt further
-3 44
policy easing measures in the form of reserve requirement ratio cuts,
2011 2012 2013 2014 2015 2016 2017 2018 2019 stimulus measures targeted at reviving auto sales and some further
Source: Fitch Ratings, BIS, IIF
easing in macro-prudential restrictions. But at this stage we do not
envisage benchmark interest rate cuts or a sharp acceleration in
credit growth over the rest of 2019 given the authorities’ concerns
Revisions to Fitch Interest Rates Forecasts about leverage and medium-term financial stability risks. As such,
we only see policy easing doing enough to maintain GDP growth
end 2019 end 2020
narrowly above 6% in 2019 and 2020 as required to achieve the
(Revisions since Mar '19 GEO, p.p.)

0.3
target of doubling real GDP between 2010 and 2020.
0.2
0.1
0.0
EMs exc. China – Liquidity Not Helping Outlook
-0.1 The tightening in global dollar liquidity was an important drag on EM
-0.2 exc. China (EM9) growth last year, as evidenced by the slowdown
-0.3 in US dollar-denominated lending, declining capital inflows and a
-0.4 tightening in EM bank lending conditions. However, the shift to easier
-0.5 dollar liquidity conditions in 2019, our more dovish Fed view (see
-0.6 below) and the prospect of lower policy interest rates in several key
Switzerland
India (FY)

Poland
Russia

Japan

South Korea
Brazil
US

South Africa

China

UK

Indonesia

Mexico
Australia

Eurozone
Canada

Turkey

EMs is not being reflected in better growth forecasts. EM9 growth is


still forecast at 1.4% this year but our 2020 forecast has been revised
down to 1.6% from 1.7% in the last GEO.
Source: Fitch Ratings

www.fitchratings.com | June 2019 8


This partly reflects the reverberation from the global manufacturing
EM9 Monthly Portfolio Inflows and world trade slump, which has contributed to particularly weak
USD bn recent data prints in several large EMs. EM9 growth is much more
40 closely correlated with the global industrial and trade cycle than
30 advanced-economy growth. Moreover, the increase in trade frictions
has dampened risk appetite and led to a renewed deterioration in
20
capital flows to EMs after the global liquidity-driven recovery seen in
10 1Q19. A proxy for portfolio flows for the EM9 showed a sharp decline
in April and May. The recent weakening in oil and metals prices will
0
also take a toll on EM commodity producer incomes.
-10
This edition of the GEO has seen sizeable cuts to our Brazil growth
-20 forecasts for both 2019 and 2020 as poor incoming data highlight
-30 the barriers to a domestic investment revival and the fallout from
the crisis in neighbouring Argentina. Mexico’s growth outlook has
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2014

2015

2016

2017

2018

2019

Note: Portfolio flows estimates for April and May 2019 based on a
also been cut sharply as tight macro policies weigh on demand
smaller sample and structural problems in the energy sector amplify declines
Source: Fitch Ratings, IIF
in oil production. South Africa’s energy sector challenges have
also dragged down wider activity with electricity load-shedding
interrupting mining and manufacturing output in 1Q19. Turkey
Emerging Markets' GDP Growth (Excluding China)
bucked the trend with slightly better-than-expected 1Q19 GDP but
4.5
this was achieved partly thanks to temporary government stimulus
measures and we still expect GDP to fall by around 1% this year.
(% yoy, GDP weighted average)

4.0
Monetary Policy Response, But No Panacea
3.5
There is little doubt that the tone of Fed commentary has become
3.0 more dovish in recent months, and we no longer expect the Fed to
hike rates in 2019. The recent escalation in trade tensions has revived
2.5 the external threats to growth that were an important part of the Fed’s
pivot in January. And evidence of spillovers to the domestic economy
2.0 has become clearer. A recent decline in core PCE inflation has also
drawn the Fed’s attention in the context of US core inflation having
1.5 been below the Fed’s target for much of the post-financial crisis
1q12
3q12
1q13
3q13
1q14
3q14
1q15
3q15
1q16
3q16
1q17
3q17
1q18
3q18
1q19

period. Fed officials have also been emphasising a positive supply-side


Source: Fitch Ratings, National Statistical Offices, Datastream
surprise from labour force growth.
However, we do not envisage the Fed cutting rates this year in
our baseline scenario where trade tensions are contained. Under
US - Core Inflation Measures this scenario, evidence that China’s economy is stabilising should
become clearer by the end of the year, allowing the Fed to focus
Core CPI Core PCE Trimmed Mean CPI
(% yoy) more on US economic data. The latter should continue to show
3.0 US sequential GDP growth printing close to the Fed’s estimate of
productive potential and unemployment remaining very low by
2.5 historical standards.
2.0 Moreover, Fed Chairman Powell has been somewhat dismissive of
the recent decline in core PCE inflation, noting that it likely reflects
1.5
temporary factors. The recent decline in the yoy core PCE measure
1.0 has not been accompanied by a dip in the core CPI or the Cleveland
Fed’s “trimmed mean” CPI measure. This contrasts with the decline
0.5 in core inflation measures in early 2017, which were across the
board. Fed commentary still chooses to present the monetary policy
0.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 stance using the framework of policy rules which would warrant rates
being slightly above neutral on the basis of very low unemployment
Source: Fitch Ratings, BLS, Cleveland Fed, Datastream
and inflation being broadly on track. wage inflation has moved up

www.fitchratings.com | June 2019 9


progressively since unemployment moved below 5% in 2016,
Chicago Fed National Financial Conditions Index underlining the relevance of the labour market. And in contrast to
(Adjusted the turn of the year, financial conditions have not tightened in recent
Index) months thanks to a sharp fall in bond yields.
-0.3
-0.4 Financial markets have taken a very different view and are now pricing
-0.5 in over two Fed rate cuts by the end of the year. Some commentary
-0.6 suggests that the Fed should take out “insurance policy” cuts to reduce
-0.7 recession risks and deliberately aim at overshooting inflation. It is
-0.8 notable, however, that Chairman Powell recently highlighted the risks to
-0.9 financial stability from late-cycle cuts in interest rates aimed at creating
-1.0 “high pressure” labour market conditions.
-1.1
-1.2 The case for monetary policy easing is, however, a lot more clear-cut
in the eurozone, where core inflation remains stubbornly below the
Jul 12

Jul 13

Jul 14

Jul 15

Jul 16

Jul 17

Jul 18
Jan 12

Jan 13

Jan 14

Jan 15

Jan 16

Jan 17

Jan 18

Jan 19

target and inflation expectations have recently fallen to historical


lows. The decline in five-year, five-year forward inflation expectations
Note: higher / lower = tighter / looser
Source: Fitch Ratings, Chicago Fed, Datastream has been on a similar scale to that seen in late 2014 before the ECB
introduced QE but, having started from a lower base, has taken long-
term expectations below 1.3%. Moreover, the decline has occurred
Euro Area - Inflation Expectations (5Y,5Y Forward) absent the sharp fall in oil prices seen in 2014, increasing the threat to
the credibility of the ECB’s inflation target.
(% yoy)
The ECB recently extended its forward guidance to keep interest rates
3.0 on hold until “at least through the first half of 2020” from “through end-
2019” and announced terms of the new TLTRO III that will incentivise
2.6 bank lending. However, more interesting was the revelation that board
members had discussed both interest rate cuts and restarting the asset
2.2 purchase programme as options for easing.

1.8 We continue to believe that the logic of weak growth, low inflation
and declining inflation expectations will prompt the ECB to restart
1.4 net asset purchases in 4Q19, albeit at a relatively modest pace of
around EUR15 billion per month. We do not envisage the ECB’s self-
1.0 imposed limits on exposures to individual sovereigns constraining
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2011

2012

2013

2014

2015

2016

2017

2018

2019

such a move. The alternative of cutting interest rates deeper into


negative territory looks less palatable given the implications for bank
Source: Fitch Ratings, Bloomberg profitability, notwithstanding the ECB’s recent attempt to downplay
these concerns.
Trade War Escalation Scenario - GDP Impact
Trade War Escalation Risk
US 25% Tariff on Additional USD300bn China Imports The downside risk to the forecast is crystallised most profoundly in the
(GDP - % difference from baseline in 2020)

0.0 US threat to impose 25% tariffs on the remaining USD300 billion of


-0.1
imports from China. Some basic arithmetic illustrates that this would
be a material shock to the global economy. Assuming this USD75
-0.2
billion tax was fully passed on to the price of Chinese goods on sale
-0.3
in the US – as recent evidence suggests it would be – demand for
-0.4 China’s exports would fall. The direct shock to export volumes could,
-0.5 over time, amount to around 0.5% of China’s GDP but this would have
-0.6 multiplier impacts through supply-chain linkages and lower incomes.
-0.7 On the US side, the initial shock could add 0.4pp to consumer prices,
-0.8 which, absent a corresponding rise in nominal wages, would reduce
-0.9 US household real incomes. This is before considering any impacts on
China US Eurozone World household and business confidence and financial markets or Chinese
(Fitch20) retaliatory measures on US imports, which would be highly likely.
Source: Fitch Ratings, Oxford Economics

www.fitchratings.com | June 2019 10


We have examined a similar scenario using the Oxford Economics
Global Model. We also incorporate Chinese retaliation – although this
largely entails higher tariff rates rather than a broadening of the list
given that US exports to China were only USD130 billion in 2017 – and
hence an impact on US export volumes. The model also incorporates
financial market and business confidence effects from the tariff shock.
The scenario assumes that China cuts interest rates by 50bp and
allows the CNY to depreciate by 5% relative to our baseline. The Fed
also responds by cutting rates.
The results suggest that global GDP would be reduced by 0.4pp
relative to our baseline by 2020, with China’s GDP down 0.8pp, the
US’s down 0.5pp and the eurozone’s down 0.2pp. These scenarios
are purely illustrative and involve only stylised characterisations of
policy responses. And they do not factor in any disruptions from
outright export restrictions on specific companies. However, they
serve to illustrate that further escalation, while unlikely to result in a
global recession, could easily see world growth heading back to lows
last seen in 2012. Punitive tariff hikes are an adverse supply shock
with damaging impacts on uncertainty and business confidence and
as such the scope for monetary policy easing to offset their impact
is limited.
Moreover, this is by no means the worst-case scenario imaginable for
trade policy disruption. US auto tariffs or a disorderly no-deal Brexit
– which could reduce UK GDP growth by 3pp relative to our baseline
over two years – would significantly amplify the impact, particularly
on the eurozone.

www.fitchratings.com | June 2019 11


www.fitchratings.com | June 2019
United States
US GDP growth surprised sharply on the upside in 1Q19 at 3.1%
US - Business Investment
annualised, compared to a forecast of 1.7% in the last GEO. However,
with inventories, net trade and state and local government spending Core Manufacturing Orders*
(% yoy) Business Investment (current prices)
accounting for a big chunk of growth, this strength is unlikely to Philly Fed Capex Survey (RHS) (% Balance)
be repeated in 2Q19. Manufacturing indicators have deteriorated 20 40
notably in recent months and 2Q19 GDP growth looks to be tracking 30
10
at around 1.3% annualised. Our 2019 annual average forecast has 20
been edged up by 0.1pp but this simply reflects the 1Q19 surprise – 0 10
we have become less optimistic about sequential growth over 2Q19 -10 0
to 4Q19. -10
-20
-20
Clearer indications of a deteriorating outlook for business investment
-30 -30
have emerged in recent months with downturns in core capital

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2010

2014

2018
goods orders and the Philadelphia Fed survey of manufacturing
firms’ capex intentions. Even allowing for some boost to residential *2q19 orders based on 3 months to April
Source: Fitch Ratings, Philadelphia Fed, Datastream
investment from the recent fall in mortgage rates, private investment
is expected to slow quite sharply this year. Consumer spending
has been holding up better though, supported by historically low
unemployment, solid consumer confidence readings, rising wages US - Private Consumption
and a steady expansion in employment. Saving Ratio (RHS) Consumer Spending (real terms)
The household sector saving ratio remains quite elevated by (% yoy) (% Income)
historical standards, and a large financial surplus and sharply 5 12
reduced debt-to-income ratio lower the risk of an aggressive 4 10
retrenchment in consumer spending in response to external shocks. 3
2 8
With the corporate sector financial deficit also very small, robust
private-sector financial balances mitigate the risk of an immediate 1 6
0 4
recession, despite the longevity of the current recovery and the
-1
recent inversion in the yield curve. Nevertheless, GDP growth is likely 2
-2
to dip below trend to 1.8% in 2020 as fiscal support fades and net -3 0
trade fails to see any benefit from rising tariffs.
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2012

2014

2016

2018
The Fed appears to be discounting the recent dip in core inflation,
Source: Fitch Ratings, BEA, Datastream
but the increase in downside growth risks stemming from the trade
war and softening business investment is likely to keep interest rates
on hold through the rest of 2019.

United States – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 2.4 2.9 2.4 1.8 1.7
Consumer Spending 2.9 2.6 2.0 2.0 2.2
Fixed Investment 4.3 5.2 1.8 1.3 1.4
Net Trade (contribution pps.) -0.4 -0.3 0.0 -0.2 -0.3
CPI Inflation (end-year) 1.5 1.9 2.2 2.3 2.5
Unemployment Rate 4.9 3.9 3.6 3.6 3.7
Policy Interest Rate (end-year) 0.83 2.50 2.50 2.75 3.00
Exchange Rate, USDEUR (end-year) 0.86 0.87 0.88 0.88 0.88
Source: Fitch Ratings

www.fitchratings.com | June 2019 13


Eurozone
Eurozone GDP growth was better than expected in 1Q19 at 0.4%
Eurozone - Corporate Profits (Gross Operating
qoq, increasing twice as much as we had forecast in the last GEO. Surplus)
Investment was the largest contributor to quarterly growth thanks
to outsized gains in Spain and Germany. Net trade also boosted the 43

economy in the first quarter. The better outturn has led us to revise

(% share of value added)


our 2019 forecast to 1.2% from 1.0%, while the projection for next 42
year remains at 1.3%.
41
Despite the encouraging quarter, we are sceptical that trade can be
supportive of growth given the high degree of external uncertainty.
40
Rather, the weak growth that we see ahead for the eurozone
economy will be entirely driven by the domestic sector with trade
39
acting as a drag. Consumer spending continues to be supported by

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2012

2014

2016

2018
employment gains, increasing household credit and rising wages,
while modest fiscal expansion is also helping the domestic economy.
Source: Fitch Ratings, ECB
Higher labour cost pressure has not been reflected in rising inflation
so far. The ECB suspects that the pass-through is being delayed as
firms absorb labour cost increases via a squeeze in profit margins.
Inflation expectations derived from financial instruments (the Eurozone - Private Sector Inflation Forecasts
5y5y forward) point to a sharp decline in recent weeks. Inflation 2 years ahead 1 year ahead 5 years ahead
expectations derived from private forecasters are also moderating. (% yoy)
2.5
Given the general slowdown in growth and the importance placed 2.3
on the financial market inflation expectations, the ECB announced 2.1
a dovish package of measures at its June policy meeting. It said that 1.9
1.7
interest rates would remain unchanged at least through the first half
1.5
of 2020, six months later than it had previously suggested. We expect 1.3
the ECB to keep rates unchanged in 2021. The ECB also announced 1.1
favourable terms for the upcoming two-year TLTRO III programme 0.9
starting in September. In the press conference, President Draghi 0.7
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2011

2013

2015

2017

2019
stated that the governing council had discussed both a rate cut and
the re-start of QE, only six months after winding up the asset buying
programme. We expect the ECB to restart QE net purchases in 4Q19. Source: Fitch Ratings, ECB (SPF), Datastream

Eurozone – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 1.9 1.9 1.2 1.3 1.2
Consumer Spending 1.5 1.3 1.4 1.4 1.4
Fixed Investment 3.3 3.4 3.7 2.4 2.4
Net Trade (contribution pps.) 0.1 0.1 -0.1 -0.3 -0.4
CPI Inflation (end-year) 0.8 1.5 1.3 1.4 1.5
Unemployment Rate 10.0 8.2 8.3 8.4 8.5
Policy Interest Rate (end-year) 0.05 0.00 0.00 0.00 0.00
Exchange Rate, EURUSD (end-year) 1.17 1.14 1.14 1.14 1.14
Source: Fitch Ratings

www.fitchratings.com | June 2019 14


China
Chinese GDP grew by 6.4% yoy in real terms in 1Q19, substantially
China - Fixed Asset Investment
faster than the 6.1% forecast in the March GEO and the same as in
4Q18. However, more recent data suggest a further slowdown lies Total (Urban) Real Estate
(ytd, % yoy) Manufacturing Infrastructure
ahead. Industrial production slowed sharply in April and May and the
30
official manufacturing PMI survey dipped back below 50 in May.
25
This is not to deny evidence of policy easing having already started
to gain traction. The credit impulse – based on the change in 20

borrowing as a share of GDP – turned slightly positive in 1Q19, and 15


infrastructure investment growth has moved back into positive
10
territory since late 2018. But looking beyond headline real GDP,
domestic demand growth is still sagging. 5

Consumer indicators remain soft, nominal GDP growth fell by 0

2013

2014

2015

2016

2017

2018

2019
over 1pp in 1Q19, and the contribution of domestic demand to
GDP growth fell to 4.9% in 1Q19 from 7.2% in 2018. Fixed asset Source: Fitch Ratings, NBS, Datastream
investment (FAI) growth has recovered marginally since 3Q18 but
this partly reflects surprisingly strong real estate investment, which
may not be sustained given flat housing sales and rising inventories.
Manufacturing FAI growth has dipped sharply since late 2018, most China - Credit Impulse
likely a victim of the trade war. Change in Borrowing (Aggregate Financing exc. Equity
Plus Local Govt. Bonds) as % GDP
Moreover, the peak impact of US tariffs probably lies ahead. While 25
our baseline forecast assumes that US tariffs on a further USD300 20
billion of Chinese imports will be avoided, the increase from 10% to 15
(% of GDP)

25% on USD200 billion of Chinese imports will only take effect from
10
early June.
5
An intensifying drag from trade will likely prompt some further policy 0
easing measures in the form of reserve requirement ratio cuts and -5
auto sector support, although we do not expect a benchmark policy -10
interest rate cut. On-budget central government fiscal support has
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2010

2011

2012

2013

2014

2015

2016

2017

2018

2019
also been stepped up significantly over the last year or so. But we
still see real GDP growth falling to 6.2% from 2Q19. Our 2019 annual Source: Fitch Ratings, PBOC, NBS
forecast has edged up to 6.2% from 6.1% in the March GEO thanks
to the 1Q19 outturn, but our 2020 forecast has been revised down
to 6.0%.

China – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 6.9 6.6 6.2 6.0 5.8
Consumer Spending 7.6 6.9 6.6 7.1 6.8
Fixed Investment 6.0 4.5 4.3 5.1 5.1
Net Trade (contribution pps.) -0.3 -0.4 1.2 -0.2 -0.2
CPI Inflation (end-year) 1.8 1.9 2.8 2.2 2.1
Policy Interest Rate (end-year) 4.78 4.35 4.35 4.35 4.35
Exchange Rate, USDCNY (end-year) 6.49 6.87 7.00 7.20 7.20
Source: Fitch Ratings

www.fitchratings.com | June 2019 15


Japan
Japanese GDP growth surprised on the upside in 1Q19, at a robust
0.6% qoq (2.1% annualised), well above the 0.2% projection made Japan - Global Manufacturing Cycle & Exports
Real exports (LHS)
in March’s GEO. The increase in growth stemmed from a substantial
Global manufacturing PMI (RHS)
build-up in inventory and a positive contribution from net trade 14 57
thanks to a sharp decline in imports. However, plunging export 12 56
demand – amid an uncertain external environment and rising trade 10 55

(% yoy, 3m.m.a.)
8 54
frictions – weighed on industrial production, which slipped at its 6 53

(Index)
fastest clip in five years. 4 52
2 51
Consumption should step up in 3Q19, as consumers bring forward 0 50
their spending ahead of the consumption tax hike in October, before -2 49
-4 48
falling off in 4Q19. However, the overall hit to activity in 4Q19 should -6 47
be milder than we previously envisaged, as the government is -8 46

2013

2014

2015

2016

2017

2018

2019
implementing new measures aimed at fully alleviating the near-term
growth impact of the tax hike. In addition to previously announced
Source: Fitch Ratings, J.P. Morgan, Haver Analytics
earmarking of higher revenues to social spending on free education
for young students and the exemption of food and beverages from
the tax hike, temporary measures include higher public investment
and vouchers for low-income families. Japan - Interest Rate and Bond Yields
We have lifted slightly our full-year 2019 GDP growth forecast to Government 10y Bond Yield Policy Interest Rate (RHS)
0.8% on the back of the 1Q19 outturn and an easier fiscal stance. We (%) (%)
have maintained our 2020 growth forecast at 0.5%. We see growth 1.2 0.45
stepping slightly back up to 0.6% in 2021. We have trimmed our
0.8 0.30
inflation forecast for 2019, to 1.5% (end of year) from 2.1%, due to
lower underlying inflation momentum and the impact on the overall
0.4 0.15
price level of the introduction of free education.
The Bank of Japan (BoJ) clarified its forward guidance in April, 0.0 0.00
announcing that it will maintain its current policy stance, in particular
short-term and long-term interest rates, until at least spring 2020. -0.4 -0.15
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2012

2013

2014

2015

2016

2017

2018

We expect the BoJ to stick with its current loose monetary settings 2019
through at least 2021 as we expect inflation to remain below target. Source: Fitch Ratings, Ministry of Finance of Japan, Bank of Japan, Haver
Analytics, Datastream
We also think the BoJ will want to wait to see growth firming up after
2020 before it contemplates a first step toward a gradual tightening.

Japan – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 1.0 0.8 0.8 0.5 0.6
Consumer Spending 0.1 0.4 0.1 -0.1 0.5
Fixed Investment 1.7 1.1 1.1 0.3 0.7
Net Trade (contribution pps.) 0.3 0.0 0.1 0.2 0.1
CPI Inflation (end-year) 1.0 0.3 1.5 0.8 1.1
Unemployment Rate 3.1 2.4 2.5 2.5 2.5
Policy Interest Rate (end-year) -0.02 -0.10 -0.10 -0.10 -0.10
Exchange Rate, USDJPY (end-year) 111.6 109.7 110.0 112.0 112.0
Source: Fitch Ratings

www.fitchratings.com | June 2019 16


United Kingdom
UK GDP growth exceeded expectations in 1Q19, rising to 0.5%
UK - Business and Consumer Confidence
qoq from 0.2% in 4Q18. This was 0.3pp faster than anticipated in
the March GEO but was largely explained by a massive surge in Business Optimism Consumer Confidence (RHS)
inventories as firms (and households) stockpiled ahead of a feared
40 0
‘no-deal’ departure from the EU in late March/early April. The
inventory build was accompanied by a spike in imports from the rest 20 -5

(Balance)
of the EU. 0 -10

(Balance)
Underlying economic conditions look a lot more fragile. There has -20 -15
been a significant decline in business and consumer confidence -40 -20
since late 2018, and firms’ investment intentions remain at lows
-60 -25
not seen since 2011. Moreover, monthly GDP data show outright
declines in both March and April. The slowdown in world trade is -80 -30

2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
also taking its toll on the UK’s open economy with a sharp fall in the
manufacturing PMI to below 50 in May. The labour market is the one
Source: Fitch Ratings, ONS, CBI, GFK - Gallup
bright spot in the economy – with historically low unemployment
and rising wage growth – but the impact of this on consumer
spending is being offset by slowing consumer credit.
The extension to the Article 50 deadline until 31 October 2019 UK - GDP Growth and Contribution from Inventories
and the resignation of Prime Minister Theresa May have done little Contribution from Inventories (exc. alignment adustment and
to reduce Brexit-related uncertainty. Indeed, the risk of a no-deal rebalancing)
GDP
Brexit has increased as Conservative Party leadership candidates
1.5
emphasise the importance of securing a swift resolution to the
Brexit impasse after the success of the newly formed Brexit Party in 1.0
(qoq, pps)

EU elections. Our base-case forecast continues to assume an orderly


0.5
exit is achieved, but it is becoming harder to foresee exactly when
Brexit uncertainty may subside. The forecast now assumes below- 0.0
trend growth in both 2019 and 2020 at around 1.4% with the Bank
of England raising interest rates only once by the end of next year. A -0.5
no-deal Brexit could see GDP fall by 3pp relative to the baseline over
-1.0
a two-year horizon and would likely prompt renewed monetary and 2q17 3q17 4q17 1q18 2q18 3q18 4q18 1q19
fiscal easing. Source: Fitch Ratings, ONS

United Kingdom – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 2.1 1.4 1.4 1.5 1.8
Consumer Spending 2.3 1.7 1.9 1.8 1.9
Fixed Investment 3.3 0.2 1.9 2.1 3.0
Net Trade (contribution pps.) -0.2 -0.2 -2.3 -0.2 -0.1
CPI Inflation (end-year) 1.5 2.1 2.4 2.5 2.2
Unemployment Rate 4.7 3.9 4.0 4.2 4.3
Policy Interest Rate (end-year) 0.46 0.75 0.75 1.00 1.25
Exchange Rate, GBPUSD (end-year) 1.43 1.27 1.25 1.25 1.25
Source: Fitch Ratings

www.fitchratings.com | June 2019 17


Germany
The German economy recovered in 1Q19 after flirting with recession
Germany - Industrial Production
in the second half of last year. The 0.4% increase was in line with our
Industrial Production (LHS)
March forecast and could have been higher had it not been for the PMI Manufacturing
sharp depletion in inventories. Domestic demand contributed to the (% yoy) (Index)
IFO Business Climate (Jan 2011=50)
better 1Q19 outturn with the strongest increase in consumption 8 66
over the past 10 years, boosted by a rebound in car registrations. 6 62
The hard-hit external sector also helped with a positive contribution 4 58
from net trade. But activity appeared to be slowing again at the start
2 54
of 2Q19 in line with weakness reported in recent manufacturing
0 50
surveys. This has prompted us to downgrade 2019 GDP growth to
0.9% from 1.0%. -2 46
-4 42
The German economy remains split between strong domestic and
weak external sectors. Germany’s greater trade openness and larger -6 38
2013 2014 2015 2016 2017 2018 2019
exposure to China have left it particularly exposed to the global
Source: Fitch Ratings, FSO, Markit, Bloomberg, Haver Analytics
downturn. New orders have declined rapidly, and the leading IFO
index for the manufacturing sector has fallen significantly in recent
months. At the same time, expansion in the domestic economy
remains largely intact. Consumer spending is supported by high Germany - Vacancies and Wage Growth
employment, rising wages, increasing demand for bank loans and Vacancies Compensation per Employee (RHS)
elevated consumer confidence, despite some moderation in the ('000) (%, yoy)
latter in recent months. 900 3.6
800 3.2
Labour market tightness will continue to be reflected in higher 700 2.8
wages given ongoing demand from companies and shortages on 600 2.4
the supply side caused by adverse demographics. Compensation 500 2.0
per employee is receiving an additional boost this year as a result of 400 1.6
the reinstatement of parity funding of the statutory health insurance 300 1.2
scheme. A modest fiscal boost will also help. In terms of investment, 200 0.8
better weather has helped to boost residential construction 100 0.4
recently but higher wage costs and skills shortages should temper 0 0.0
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2011

2013

2015

2017

2019
investment over the forecast horizon. Business investment will be
affected by the cooling in world trade and ongoing uncertainty Source: Fitch Ratings, Bundesbank, Datastream
surrounding trade disputes. External weakness has resulted in a
moderation in the demand for labour in the manufacturing sector
but overall vacancies are close to historical highs.

Germany – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 1.9 1.4 0.9 1.4 1.4
Consumer Spending 1.5 1.1 2.0 1.6 1.7
Fixed Investment 2.9 2.6 3.0 2.0 2.0
Net Trade (contribution pps.) 0.1 -0.4 -0.4 -0.2 -0.2
CPI Inflation (end-year) 1.1 1.7 1.9 2.0 2.1
Unemployment Rate 4.2 3.4 3.4 3.4 3.5
Policy Interest Rate (end-year) 0.05 0.00 0.00 0.00 0.00
Exchange Rate, EURUSD (end-year) 1.17 1.14 1.14 1.14 1.14
Source: Fitch Ratings

www.fitchratings.com | June 2019 18


France
The French economy grew by 0.3% in 1Q19, in line with our March
France - Retail Sales & Consumer Confidence
GEO forecast. Quarterly growth was dragged down by a surge in
Retail Sales (LHS) Consumer Confidence
imports (1.4% qoq) but offset by strong stock rebuilding that followed (% yoy,
3mma) (Index)
two quarters in which inventories had been run down. A stabilisation
6 111
in manufacturing surveys and an increase in industrial production
suggest a further modest gain in 2Q19. The disruption to activity 5 105
caused by the ‘yellow vest’ protestors appears to be dissipating. 4 99
Domestically, the economy is likely to benefit from a recovery in 3 93
consumer spending as confidence recovers from the lows reported
at the height of protests late last year. Moreover, the emergency 2 87
economic and social measures announced in response to those 1 81
protests should boost household purchasing power this year and
0 75
help consumer spending. According to the Bank of France, the 2012 2013 2014 2015 2016 2017 2018 2019
measures are expected to support household consumption, adding
Source: Fitch Ratings, INSEE, Haver Analytics
a cumulative 0.3pp to GDP growth in 2019 and 2020. Spending
should also remain supported by high employment, although the
rate of job creation has slowed noticeably since the middle of last
year following cuts to subsidised jobs. France - Industrial Production
While the deceleration in world demand is likely to weigh on activity, Industrial Production
(% yoy) PMI Manufacturing (RHS) (Index)
France is expected to avoid the marked slowdown seen in other
6 60
larger exporters such as Germany. This is because extra-euro exports
(where weakness has been concentrated) account for around 16%
of GDP in France, roughly half the equivalent measure for Germany. 3 55

Business investment is likely to continue to increase faster than


0 50
overall economic activity but should ease over time, resulting in
a moderation of the investment ratio, which sits at record highs.
-3 45
Near term, business investment will remain supported by improved
corporate cash flows, low interest rates and favourable financing
conditions. We have kept our GDP growth forecasts for this year -6 40
2012 2013 2014 2015 2016 2017 2018 2019
and 2020 unchanged at 1.4% and 1.5% respectively, while our new
projection for 2021 is 1.5%. Source: Fitch Ratings, INSEE, Markit, Bloomberg, Haver Analytics

France – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 1.4 1.7 1.4 1.5 1.5
Consumer Spending 1.3 0.9 1.2 1.2 1.2
Fixed Investment 2.2 2.8 2.5 2.1 2.1
Net Trade (contribution pps.) -0.2 0.7 0.0 0.1 0.1
CPI Inflation (end-year) 0.9 1.9 1.5 1.6 1.6
Unemployment Rate 9.9 9.1 8.8 8.5 8.5
Policy Interest Rate (end-year) 0.05 0.00 0.00 0.00 0.00
Exchange Rate, EURUSD (end-year) 1.17 1.14 1.14 1.14 1.14
Source: Fitch Ratings

www.fitchratings.com | June 2019 19


Italy
The Italian economy performed marginally better than we had
Italy - Household and Corporate Loans*
expected in 1Q19, growing 0.1% rather than the zero growth we
Corporate Loans Household Loans
forecast in March. A large decline in imports of 1.5%, equivalent to a
(% yoy)
contribution of 0.5pp to quarterly growth, was offset by a larger drop
4
in inventories (equivalent to 0.7pp). Near-term growth dynamics
could benefit from a potential swing back in inventories and an 2
expected fiscal boost. But growing tensions between Rome and 0
Brussels over the fiscal outlook are likely to result in a replay of last
year’s jump in government bond spreads. -2

-4
A rise in the cost of borrowing was reported to be a factor constraining
Italian firms’ capital expenditure in 3Q18 and could become an -6
important factor once again, though it is notable that Italian yields
-8
have fallen this year despite a recent widening in spreads over 2012 2013 2014 2015 2016 2017 2018 2019
Germany. Investment growth is expected to decline noticeably this * adjusted for reclassification
Source: Fitch Ratings, ECB, Haver Analytics
year, to 1.3% from 3.4% in 2018, given somewhat tighter credit
conditions, the deterioration in the global macroeconomic outlook
and high levels of uncertainty stemming from both the domestic
political situation and international trade tensions. Moreover, new Italy - Credit Conditions and Investment Outlook
lending to non-financial companies has been on a downward trend
Firms' credit conditions assessment
since mid-2018, with the annual growth rate turning negative at the (%)
Assessment of conditions for investment
start of the year. High-frequency indicators show that the economy
20
has basically been flat-lining in 2Q19, and we expect quarterly
10
growth to range between 0.1% and 0.2% for the rest of this year. 0
-10
Consumption is weak and is expected to remain so as households’
-20
assessment of current and expected economic growth continues to -30
deteriorate. Loans to households are still growing at a decent rate -40
but other factors may prove to be less supportive of consumption. -50
The employment rate is close to its highest level in a decade but the -60
growth rate appears to be moderating, while nominal wages have -70
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019
also eased to around 1.5% annually after a noticeable increase last
year. Our GDP growth forecast for this year remains 0.1%, followed Source: Fitch Ratings, Bank of Italy
by 0.5% for 2020 and 0.4% for 2021.

Italy – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 0.9 0.9 0.1 0.5 0.4
Consumer Spending 1.1 0.6 0.4 0.5 0.4
Fixed Investment 2.2 3.4 1.3 0.5 0.4
Net Trade (contribution pps.) -0.2 -0.1 0.5 -0.1 -0.1
CPI Inflation (end-year) 0.6 1.2 1.1 1.3 1.2
Unemployment Rate 11.6 10.6 10.7 10.9 11.0
Policy Interest Rate (end-year) 0.05 0.00 0.00 0.00 0.00
Exchange Rate, EURUSD (end-year) 1.17 1.14 1.14 1.14 1.14
Source: Fitch Ratings

www.fitchratings.com | June 2019 20


Spain
The Spanish economy remains relatively untroubled by softer
Spain - Industrial Production
growth elsewhere. In the March GEO, we projected growth of 0.5% Industrial Production
in 1Q19 but the outturn was stronger at 0.7%, driven by an increase (% yoy) PMI Manufacturing (RHS) (Index)
in investment (1.5% qoq) and a boost from trade. The latter came 8 58
despite a contraction in exports and reflected a very sharp (1.1% 6 56
qoq) decline in imports. Given the strength of the economy at the 4 54
start of the year, we have revised upwards our GDP forecast for this 2 52
year to 2.3% from 2.1%. Our forecast for 2020 remains unchanged
0 50
at 1.7%, and we have added a projection of 1.6% for 2021.
-2 48
Capital formation has been a key driver in the current cycle, and while -4 46
some moderation is likely after the very strong 5.3% recorded in
-6 44
2018, we expect growth this year to remain solid at 3.3%. Companies
still enjoy a robust domestic economic environment, and sentiment -8 42
2013 2014 2015 2016 2017 2018 2019
remains quite upbeat. In addition, residential investment is now
Source: Fitch Ratings, INE, Markit, Bloomberg, Haver Analytics
rising after a long period of decline.
The outlook for consumption in the near term will depend on two
opposing forces: rising real wage growth and slowing employment.
Spain - Employment Growth and Consumption
Low inflation and a gradual increase in wages – recently boosted by
including a 22% increase in the minimum wage – should support Private Consumption Employment Growth
(% yoy)
household purchasing power. Strong economic growth has resulted 6
in some 2.5 million jobs being created since 2014 but we expect
4
employment growth to slow down as the economy eases back
towards trend and the labour market towards full employment. 2

0
Households have limited room to offset the expected slowdown in
employment growth as the savings rate is now close to its lowest in a -2
decade. In combination with rising residential investment, this has been -4
associated with a shift into financial deficit for the household sector as
-6
a whole. The Socialist Party won the general election in April but fell
short of an overall majority. Prime Minister Sanchez has indicated that -8
2007 2009 2011 2013 2015 2017 2019
he would prefer to govern in a minority but seek confidence-and-supply
agreements with groups including Unidas Podemos. Source: Fitch Ratings, Eurostat, INE, Datastream

Spain – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 2.8 2.6 2.3 1.7 1.6
Consumer Spending 2.4 2.3 1.7 1.8 1.5
Fixed Investment 4.9 5.3 3.3 2.8 2.3
Net Trade (contribution pps.) 0.0 -0.2 0.3 0.0 0.2
CPI Inflation (end-year) 0.5 1.2 1.4 1.5 1.5
Unemployment Rate 19.7 15.3 14.2 13.5 13.3
Policy Interest Rate (end-year) 0.05 0.00 0.00 0.00 0.00
Exchange Rate, EURUSD (end-year) 1.17 1.14 1.14 1.14 1.14
Source: Fitch Ratings

www.fitchratings.com | June 2019 21


Switzerland
The Swiss economy surpassed our expectations in 1Q19, growing
Switzerland - Exchange Rates
0.6% against a March GEO forecast of 0.4%. The better outturn
USDCHF REER (RHS) (Index,
was due to a strong increase in investment (which followed two (USDCHF) 2010=100)
consecutive quarters of contraction) and a sizeable boost from 1.05 120
exports. The improved quarter has resulted in an upgrade to our
2019 GDP growth forecast to 1.4% from 1.2%. Our forecast for next 1.00 117
year remains unchanged.
0.95 114
Escalating trade tensions and financial market uncertainty have
resulted in renewed ‘safe haven’ capital inflows, pushing the Swiss 0.90 111
franc to close to its highest level in two years against the euro.
Unfavourable currency moves add to ongoing trade woes and will 0.85 108
weigh on the country’s industrial sector. Leading indicators such as
0.80 105
the KOF and the manufacturing PMI continue to point to weakness
2012 2013 2014 2015 2016 2017 2018 2019
ahead. Further down the line, the threat of US tariffs on European
Source: Fitch Ratings, SNB, Haver Analytics
cars would have a major impact on Switzerland given that EU
countries, and especially Germany, are its main trading partners.
As well as global trade uncertainty, there are risks surrounding
Switzerland - KOF Indicator and Real Growh
Switzerland’s negotiations with the EU on finalising its key
framework agreement. The EU has given Switzerland until July KOF Leading Indicator Real GDP (RHS)
(Index) (% yoy)
of this year to decide if it wants to accept the deal, which covers
120 6
movement of people, mutual recognition of industrial standards, 115 5
agricultural products and others. Given the degree of uncertainty, 110 4
we expect businesses to pull back on investment spending this 105 3
year. Our forecast sees investment growth decline to 1.1% this 100 2
95 1
year from 2.1% last year. Consumer confidence is declining and
90 0
nominal wage growth remains weak, also constraining the outlook 85 -1
for consumption. 80 -2
75 -3
Strength in the Swiss franc and an increasingly dovish ECB are likely 70 -4
to keep interest rates unchanged through 2021. Low inflation could
2000

2002

2004

2006

2008

2010

2012

2014

2016

2018
be cemented by an oversupply of apartments for rent, which will
push the price of housing rentals down – rentals have a large weight Source: Fitch Ratings, KOF, SECO, Datastream

in the CPI index (18%).

Switzerland – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 1.9 2.5 1.4 1.6 1.4
Consumer Spending 1.3 1.0 1.2 1.4 1.3
Fixed Investment 2.8 2.1 1.1 1.8 1.6
Net Trade (contribution pps.) 1.2 2.5 2.0 0.3 0.2
CPI Inflation (end-year) 0.0 0.8 0.8 0.9 0.8
Unemployment Rate 3.1 2.8 2.6 2.7 2.8
Policy Interest Rate (end-year) -0.58 -0.75 -0.75 -0.75 -0.75
Exchange Rate, USDCHF (end-year) 0.97 0.97 1.00 1.00 1.00
Source: Fitch Ratings

www.fitchratings.com | June 2019 22


Australia
Australia’s economy saw another weak GDP reading in 1Q19,
Australia - Dwelling Approvals
growing a meagre 0.4% qoq. This was below our forecast of 0.6%
in the March GEO. This marks the third consecutive print of weak 21,000
growth. On a yoy basis, GDP expanded by 1.8%, its lowest level since
19,000
the global financial crisis, down from a cyclical high of 3.1% in 2Q18.

(Units, 3.m.m.a.)
17,000
The sharp slowdown since the second half of last year is domestically
driven and has been triggered by a protracted downturn in the 15,000
housing market. Declining house prices (down 5.1% yoy in 1Q19)
have dragged down construction activity and prompted households 13,000
to hold back their spending against a backdrop of sluggish income
11,000
growth, a low savings ratio and high debt.
9,000
High-frequency indicators point to this weak momentum continuing

1987

1991

1995

1999

2003

2007

2011

2015

2019
in 2Q19. April (nominal) retail sales slipped 0.1% mom and business
surveys have generally turned more downbeat. The components of Source: Fitch Ratings, ABS, Haver Analytics
the National Australia Bank survey on business conditions and firms’
hiring intentions have continued to deteriorate through 2Q19. We
have made a further significant cut to our 2019 GDP growth forecast
Australia: Households Income & Savings Ratio
to 1.7% (from 2.0% in the last GEO). This would be a 28-year low in
annual growth. Real disposable income (% yoy)
(%) Savings ratio (% of disposable income)
In the face of mounting downward pressure on the economy and
12
muted inflationary pressure, the Reserve Bank of Australia cut its 10
policy rate by 25bp in its June meeting, to 1.25%, as we had expected 8
in the March GEO. Our base case now calls for one further rate cut 6
this year, which will bring the policy rate down to 1% by the end of 4
the year. 2
0
GDP growth should gradually start picking up from 2H19, helped by
-2
policy support, buoyant export receipts from commodities (notably iron
-4
ore), a stabilisation of house prices and a lower exchange rate. Along
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
with monetary policy, macro-prudential policy easing has been set
in train with the proposed modification of a key mortgage rule by the Source: Fitch Ratings, ABS, Haver Analytics
financial regulator. Fiscal policy has turned mildly more expansionary,
with personal income tax rebates due to take effect soon and continued
growth in infrastructure spending by state governments.

Australia – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 2.6 2.8 1.7 2.4 2.5
Consumer Spending 2.5 2.6 1.3 1.8 2.2
Fixed Investment -0.4 2.4 -0.5 2.7 2.6
Net Trade (contribution pps.) 0.6 0.2 0.3 0.1 0.0
CPI Inflation (end-year) 1.8 1.8 1.8 2.0 2.1
Unemployment Rate 5.7 5.3 5.2 5.3 5.2
Policy Interest Rate (end-year) 1.87 1.50 1.00 1.00 1.25
Exchange Rate, USDAUD (end-year) 1.29 1.42 1.50 1.47 1.42
Source: Fitch Ratings

www.fitchratings.com | June 2019 23


Canada
We have revised down our forecast for Canada’s growth in 2019
Canada - Export Volume
after a disappointing 4Q18 and 1Q19. However, looking through (% yoy,
temporary factors (including Alberta’s curtailment of oil production), 3mma)
momentum is still present. After growth of just 0.4% annualised in 12
1Q19, we expect a pick-up in growth in 2Q19 and full-year growth of
1.3%, rising to 1.7% in 2020 as export growth resumes. This comes 8
despite a forecast slowing in growth in the US, Canada’s main trading
partner. Business investment intentions have improved, except in
4
the energy sector where they remain subdued.
While not a leading indicator, unemployment continues to fall, 0
touching 5.4%, its lowest level since 1976, reflecting strength in
job creation including in skilled employment. Inflation is also under
-4
control, reaching 2% in April, with core inflation at 1.9%. 2012 2013 2014 2015 2016 2017 2018 2019
In contrast to the Fed, the Bank of Canada (BoC) sees its policy rate Source: Fitch Ratings, CANSIM, Datastream
of 1.75% still below the neutral level (a range of 2.25%-3.25%) and
it is slightly negative in real terms. Yet after three hikes in 2018, we
now expect the BoC to keep rates on hold in 2019, in line with the
Canada - Residential Investment
Fed, and assume that it will resume tightening in 2020. The latest
BoC statement at the end of May removed references to near-term (% yoy)
rate rises. 20

Lower housing market activity contributed to the slowdown in the 15


wake of higher interest rates and macro-prudential tightening, but this 10
now appears to be stabilising. One measure of momentum in credit
5
growth, the annualised three-month change in household credit, has
started to rise again after a steep decline starting in 4Q17. Housing 0
activity as defined by the BoC, including new construction, renovations -5
and transactions, peaked at around 7.5% of GDP in 2017. -10
The main downside risk to the growth forecast is represented by trade -15
tensions. The US dropped tariffs on Canada’s steel and aluminium 2012 2013 2014 2015 2016 2017 2018 2019
exports in May but passage of the reworked North American free Source: Fitch Ratings, Statistics Canada, Haver Analytics
trade agreement USMCA is not yet assured in the US.

Canada – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 1.9 1.8 1.3 1.7 1.7
Consumer Spending 2.5 2.1 1.9 1.8 2.1
Fixed Investment -0.7 0.8 0.1 2.9 2.4
Net Trade (contribution pps.) 0.3 0.1 -0.5 -0.4 -0.4
CPI Inflation (end-year) 1.7 2.0 2.0 2.0 2.0
Unemployment Rate 6.6 5.8 5.8 5.7 5.7
Policy Interest Rate (end-year) 0.85 1.75 1.75 2.00 2.25
Exchange Rate, USDCAD (end-year) 1.26 1.37 1.35 1.35 1.35
Source: Fitch Ratings

www.fitchratings.com | June 2019 24


Brazil
Fitch has downgraded Brazil’s 2019 and 2020 growth forecasts to
Brazil - Real GDP Growth
1% and 2.2%, respectively, from 2.1% and 2.7% in the March GEO.
The 1Q19 GDP data confirm that the economy is struggling to Quarterly GDP Growth
(% qoq) Annual GDP Growth (RHS) (% yoy)
rebound. Real GDP declined by 0.2% qoq, the first negative result
3 6
since 4Q16. On the demand side, gross fixed capital formation
contracted by 1.7% qoq and exports by 1.9% qoq. On the supply 2 4
side, the contraction in the industrial sector was led by mining (-6.3% 1 2
qoq), while manufacturing contracted by 0.5% qoq.
0 0
Uncertainty over the government’s capacity to execute reforms, -1 -2
the ongoing impact of the Argentine crisis and the Vale dam
-2 -4
collapse earlier this year are all weighing on growth. While a there
has been some recovery in credit growth, the transmission of an -3 -6

1q12
3q12
1q13
3q13
1q14
3q14
1q15
3q15
1q16
3q16
1q17
3q17
1q18
3q18
1q19
accommodative monetary policy appears to be curtailed by high
bank spreads and the withdrawal of BNDES from the credit market.
Source: Fitch Ratings, OECD, Datastream
Possible passage of the pension reform in 2H19 could reduce policy
uncertainty, which along with dissipation of some transient shocks
could see growth accelerate in 2020.
The chief domestic risks for Brazil’s economic performance include Brazil - Industrial Production and PMI
disappointment on the reform agenda (particularly the pension Industrial Production PMI Manufacturing (RHS)
(% yoy) (Index)
reform) that increases concerns related to public finances. On the
10 54
external front, lower commodity prices, a faster-than-expected China
slowdown, heightened international trade tensions and a weaker 5 52
Argentine economy could hurt prospects. 0 50

Inflation has risen above the 4.5% inflation target in recent months, -5 48
largely reflecting food and transportation prices. Services and -10 46
core inflation remain contained, reflecting an output gap, sluggish -15 44
economic recovery and a high unemployment rate. Inflation
-20 42
expectations remain well anchored around the targets for 2019-
2020. These factors, coupled with a more benign US Fed interest -25 40
2013 2014 2015 2016 2017 2018 2019
rate path, have given the central bank space to hold the policy rate
at 6.5% for longer. Fitch expects Brazil’s benchmark interest rate to Source: Fitch Ratings, IBGE, Markit, Bloomberg, Haver Analytics

remain stable in 2019 and a tightening cycle to commence in 2020.

Brazil – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP -0.8 1.1 1.0 2.2 2.5
Consumer Spending -0.3 1.9 2.1 2.7 2.8
Fixed Investment -5.7 4.1 1.2 4.2 2.9
Net Trade (contribution pps.) 0.6 -0.5 0.0 -0.4 0.1
CPI Inflation (end-year) 6.2 3.7 4.0 4.0 3.8
Policy Interest Rate (end-year) 11.03 6.50 6.50 7.25 7.75
Exchange Rate, USDBRL (end-year) 3.21 3.88 3.80 3.80 3.90
Source: Fitch Ratings

www.fitchratings.com | June 2019 25


Russia
We have revised our 2019 GDP growth forecast for Russia down
Russia - Retail Sales, Wages and Construction
to 1.2% from 1.5% in the March GEO, reflecting a greater-than-
expected deceleration of the economy in 1Q19, according to Retail Sales
Real Wages (% yoy,
(% yoy)
Rosstat’s flash estimate of 0.5% yoy. Disaggregated data will be Volume of Works in Construction (RHS) 3m.m.a.)
released later in June and revisions cannot be ruled out, as Rosstat 15 9
is undertaking methodological and data collection changes. High- 10 6
frequency indicators, though, show weaker private consumption
5 3
and investment in the first few months of the year. We expect
execution of government capex to gain speed later in 2019, while 0 0
reduced inflationary pressures and fading of the VAT effects will -5 -3
benefit private consumption. We still forecast growth to accelerate
to 1.9% in 2020 and remain at that level in 2021, underpinned -10 -6
by investment execution under the national programmes, lower -15 -9
inflation and monetary policy easing. 2012 2013 2014 2015 2016 2017 2018 2019
Source: Fitch Ratings, Rosstat, Datastream
After peaking at 5.3% in February, inflation moderated to 5.1% in
May. With the full impact of the recent VAT increase now likely to
have been absorbed, inflationary pressures should ease further
given stability in domestic fuel prices, a gradual recovery in domestic Russia - Inflation and Inflation Expectations
demand and softening food prices. We expect inflation to end 2019 CBR MPR
at 4.5% and remain close to 4% in 2020-2021. CPI (annual)
(%) HH Inflation Expectations (next 12 month)
We have revised our monetary policy baseline and now anticipate 20
that the central bank will cut rates once more this year for a total 18
16
of 50bps in 2019, given inflation dynamics, declining inflation
14
expectations and easier global liquidity conditions. Some additional 12
easing (-25bp) is possible in 2020 as inflation converges to the target 10
of 4%. Nevertheless, rising global interest rates, continued risks 8
derived from geopolitical tensions, and the central bank’s objective 6
to anchor inflation expectations will probably constrain further 4
easing. We forecast a slightly stronger end-year RUB/USD due to 2
0
still strong external surpluses and the return of portfolio inflows 2014 2015 2016 2017 2018 2019
into the local debt market on the back of reduced perceptions of
Source: Fitch Ratings, CBR
US sanctions risks. The RUB will weaken slightly in 2020-2021 in
line with lower oil prices, the continuation of the foreign-currency
purchase programme and continued geopolitical risks.

Russia – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 0.5 2.3 1.2 1.9 1.9
Consumer Spending -0.7 2.3 0.6 2.2 2.4
Fixed Investment -0.7 2.9 1.4 3.7 3.5
Net Trade (contribution pps.) 1.6 0.7 0.4 -0.4 -0.6
CPI Inflation (end-year) 7.4 4.3 4.3 4.0 4.0
Policy Interest Rate (end-year) 9.55 7.75 7.25 7.00 7.00
Exchange Rate, USDRUB (end-year) 57.61 69.37 66.00 67.00 67.50
Source: Fitch Ratings

www.fitchratings.com | June 2019 26


India
India’s GDP growth declined for the fourth consecutive quarter
India - Agriculture Output & Food Inflation
in 1Q19, with the economy expanding by 5.8% yoy, down from a
cyclical high of 8.1% in 1Q18. This is the lowest growth outturn in five (% yoy) Agriculture Output Food Inflation
years. The slowdown over the past year has been driven by steadily 16
cooling activity in the manufacturing sector and, to a lesser extent, 14
agriculture. Weaker momentum has been mainly domestically 12
10
driven, though export growth has also faltered more recently.
8
Muted food price inflation has weighed on farmers’ income and 6
production. The contribution of agricultural output to gross value 4
added yoy growth has declined from 1pp in 1Q18 to zero in 1Q19, 2
while food inflation has plummeted from 6.5% yoy to -0.1% yoy. 0
In addition, lower lending by non-bank financial companies has -2
weighed on growth in infrastructure and consumption, even though -4
2012 2013 2014 2015 2016 2017 2018 2019
banks have partially compensated by ramping up their lending to
Source: Fitch Ratings, CSO, MOSPI, Haver Analytics
the private sector. The overall credit impulse – ie the change in new
borrowing provided by the financial sector (banks and non-banks) –
has turned significantly negative in fiscal year (FY) 2018-2019.
India - Portfolio Inflows
In the face of weak growth momentum and contained inflation, the
Reserve Bank of India (RBI) proceeded with a 25bp rate cut in its June Portfolio Equity Inflows Portfolio Debt Inflows
meeting – the third cut so far this year. We expect another 25bp cut later 4
in 2019, which will push the policy repo rate down to 5.50%. Monetary 3
(USD bn, 3m.r.a.)

and regulatory easing from the RBI, along with a recovery in portfolio 2
inflows, should support a recovery in credit to the private sector and
1
reverse the drag from the negative credit impulse. Food inflation has
0
already started to pick back up (at 2% yoy in May) and the government
has increased cash transfers to farmers in its latest budget, all of which -1
should support rural households’ income and consumption. We see -2
growth for FY 2019-2020 printing at 6.6%, before stepping up to 7.1% -3
in FY 2020-2021 and 7.0% in FY 2021-2022.
Feb 18

May 18

Feb 19

May 19
Jul 18
Jan 18

Jun 18

Jan 19
Apr 18

Aug 18
Sep 18

Nov 18
Dec 18
Oct 18

Apr 19
Mar 18

Mar 19

Source: Fitch Ratings, IIF

India – Forecast Summary


(%) FY starting April Ann. Av.2014-18 FY18-19 FY19-20f FY20-21f FY21-22f
GDP 7.4 6.8 6.6 7.1 7.0
Consumer Spending 7.5 8.1 7.0 7.9 7.3
Fixed Investment 5.7 10.0 3.0 7.3 7.4
Net Trade (contribution pps.) 0.4 -1.1 0.0 -0.2 -0.1
CPI Inflation (end-cal. year) 4.7 2.1 3.8 4.1 3.8
Policy Interest Rate (end-cal. year) 6.83 6.50 5.50 5.75 6.00
Exchange Rate, USDINR (end-cal. year) 65.18 69.82 70.00 71.00 72.00
Source: Fitch Ratings

www.fitchratings.com | June 2019 27


Korea
The Korean economy unexpectedly contracted in 1Q19, with GDP
Korea - Supply-Side Contributions to Real GDP
falling sharply by 0.4% qoq – the biggest fall since the global financial
crisis of 2008-2009. External headwinds dampened GDP, with export Manufacturing Others Construction
volumes plunging 3.2% qoq and manufacturing output slipping Services GDP
1.7% qoq, its largest contraction since 2009. The sharp fall in GDP (% qoq)
was also down to an unexpectedly large pullback of government 2.0
investment, which dropped at its fastest clip in nine years. 1.5
1.0
Korean exports have been under pressure since the second half of
0.5
2018, affected by the slowdown in China and rising trade frictions,
which exacerbated the cyclical downturn in the memory chip sector. 0.0
The price of semiconductors – one of Korea’s main export items – -0.5
has plummeted sharply since late 2018, squeezing profit margins. -1.0
Meanwhile, sharp increases in the minimum wage over the past two -1.5
years have hurt business sentiment and weighed on margins. Firms 2013 2014 2015 2016 2017 2018 2019
Source: Fitch Ratings, BoK, Haver Analytics
have cut back capital expenditure sharply, with private investment in
facilities falling continuously since 2Q18 and down almost 20% yoy
in 1Q19.
With underlying momentum much weaker than we had envisaged, Korea - Daily Stock Price and FX
we have cut our 2019 GDP growth forecast substantially, from 2.5% to KOSPI Stock Price Index USDKRW (RHS)
2.0%. Growth should recover from the second half of the year, helped 2,800 1,250
by the rollout of new fiscal measures to spur domestic demand and
2,600 1,200
support job creation. On the external front, our base case calls for no

(USDKRW)
further trade war escalation and for looser dollar financial conditions. 2,400 1,150
(Index)

This should help sentiment and support global value chains, in which
2,200 1,100
Korean manufacturers are highly integrated. We expect GDP growth to
pick up pace to 2.6% in both 2020 and 2021. 2,000 1,050
Muted inflationary pressure and a slowing economy are likely to 1,800 1,000
prompt the Bank of Korea to cut rates by 25 bps soon but we see
this being reversed in 2020. 1,600 950
2012 2013 2014 2015 2016 2017 2018 2019
Source: Fitch Ratings, Korea Stock Exchange, Datastream

Korea – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 3.0 2.7 2.0 2.6 2.6
Consumer Spending 2.5 2.8 1.9 2.2 2.3
Fixed Investment 4.5 -2.4 -2.1 3.3 2.8
Net Trade (contribution pps.) -0.4 1.2 0.3 0.1 0.2
CPI Inflation (end-year) 1.3 1.3 1.0 1.3 1.6
Policy Interest Rate (end-year) 1.63 1.75 1.50 1.75 2.00
Exchange Rate, USDKRW (end-year) 1115 1116 1180 1150 1150
Source: Fitch Ratings

www.fitchratings.com | June 2019 28


Indonesia
Our GDP growth forecasts for Indonesia remain unchanged for both
Indonesia - Interest Rate and Bond Yields
2019 and 2020. The economy is still expected to expand by 5.0%
this year, followed by 5.1% in 2020. The re-election of President Joko Government 10Y Bond Yield
Widodo in April has reduced political uncertainty, while domestic (%) Policy Interest Rate (LHS) (%)
demand should continue to be sustained by infrastructure spending 8.0 11
and elevated consumer confidence. In 2021, we expect GDP growth to 7.5 10
step up to 5.3%, supported by a continued focus on structural reforms. 7.0 9
6.5 8
While our global scenario calls for somewhat easier global financial
6.0 7
conditions than previously envisaged, we still do not see Bank
5.5 6
Indonesia (BI) starting to unwind last year’s policy tightening before
2020. The lingering current account deficit and the associated risk 5.0 5

of renewed rupiah (IDR) volatility are likely to make BI err on the side 4.5 4

of caution. Noticeable falls in the IDR and the Jakarta Composite 4.0 3
2012 2013 2014 2015 2016 2017 2018 2019
Index in May reflect foreign investors’ concern about poor external
performance – for example a sell-off in Indonesian assets followed Source: Fitch Ratings, Thomson Reuters, Bank Indonesia, Datastream

the release of the April trade deficit, which reached a record high
of USD2.5 billion. We expect BI to start easing its currently tight
policy stance from next year with 25bp cuts in both 2020 and 2021. Indonesia - Export and Import Volumes
However, while not our base case, there is an increasing chance
Exports of Goods and Services
that BI will cut its policy rate as early as this year if the external (% yoy)
Imports of Goods and Services
environment allows for it. 20

Balance-of-payments constraints and the authorities’ focus on 15


macro stability should limit the pick-up in public investment 10
spending, which has a high import content. On the export front, while
5
we have pencilled in accelerating shipments from the second half of
this year, the slowdown in China – Indonesia’s first trading partner 0
– should hold back export growth. Unlike some peer countries in -5
the region such as Vietnam, Indonesia lacks a strong manufacturing
-10
base, and will likely benefit less from US import diversification away
1q12
3q12
1q13
3q13
1q14
3q14
1q15
3q15
1q16
3q16
1q17
3q17
1q18
3q18
1q19
from Chinese manufacturing products.
Source: Fitch Ratings, Statistics Indonesia, Datastream

Indonesia – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 5.0 5.2 5.0 5.1 5.3
Consumer Spending 5.1 5.1 5.3 5.3 5.3
Fixed Investment 5.4 6.7 5.2 5.3 5.6
Net Trade (contribution pps.) 0.0 -1.0 0.7 0.1 0.1
CPI Inflation (end-year) 4.7 3.1 3.0 3.1 3.0
Policy Interest Rate (end-year) 6.15 6.00 6.00 5.75 5.50
Exchange Rate, USDIDR (end-year) 13233 14380 14400 14450 14500
Source: Fitch Ratings

www.fitchratings.com | June 2019 29


Mexico
The Mexican economy has narrowly avoided a technical recession as
Mexico - GDP growth
GDP was flat in 4Q18 and contracted 0.2% qoq in 1Q19. Fitch expects
growth to accelerate from 2Q19, but even so it will reach only 1% GDP GDP exc. Oil
(% yoy)
over 2019. Lower inflation and higher wages (stemming from rises
5.0
in the minimum wage) will support consumption but investment
4.5
continues to fall. Tight fiscal policy and policy uncertainty is likely to 4.0
keep growth subdued below its potential rate in 2020-2021. 3.5
The energy sector continues to be a drag on growth (mining output, 3.0
mainly oil, fell 5.5% in 2018). Falling oil production directly subtracted 2.5
0.3pp from growth in 2018. There was a minor impact in 1Q19 from 2.0
the authorities’ crackdown on fuel theft, which led to localised 1.5
shortages. Recent monthly data show production stabilising, 1.0

1q14

3q14

1q15

3q15

1q16

3q16

1q17

3q17

1q18

3q18

1q19
although it was still 11% lower yoy in 1Q19. Fitch’s growth forecast
assumes that oil output shrinks by 5% in 2019 and 2020.
Source: Fitch Ratings, INEGI
Banxico held rates at 8.25% at its latest monetary policy meeting
on 16 May, unchanged since a hike in December 2018. Banxico
minutes reveal a continued hawkish tone. Mexican rates’ premium
over US rates, at almost 600bp, is well above its recent average. Fitch Mexico - Mexican Peso and Interest Rate
still expects Banxico to start cutting rates in 2019, but now only once, USDMXN Policy Interest Rate (RHS)
to 8%. Inflation has resumed a downward trend, reaching 4.3% in (USDMXN) (%)
May, although inflation expectations are stuck above the 3% target. 22 10
Recently Banxico has noted possible pressure from the rise in the
20 8
minimum wage.
A US presidential threat to impose tariffs at an initial 5% on all 18 6
Mexico’s exports was averted in early June, but further volatility
16 4
cannot be ruled out and the potential for shocks to Mexico’s risk
premium remains. For this reason, we have revised up our end-2019 14 2
interest rate expectation (from 7.75% before) despite our lower Fed
rates forecast. Ratification of USMCA in the US, Canada and Mexico 12 0
would provide some upside risk to our peso forecasts and downside 2012 2013 2014 2015 2016 2017 2018 2019

to rate forecasts, but the political window for this will close in 2020 as Source: Fitch Ratings, WM/Reuters, Banco de Mexico, Datastream
US elections approach.

Mexico – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 2.6 2.0 1.0 1.8 2.0
Consumer Spending 2.8 2.2 1.2 2.6 2.5
Fixed Investment 1.6 0.6 -3.1 0.3 1.6
Net Trade (contribution pps.) 0.1 -0.2 -0.7 -0.2 -0.2
CPI Inflation (end-year) 4.1 4.8 3.8 3.5 3.5
Policy Interest Rate (end-year) 4.99 8.25 8.00 7.50 7.25
Exchange Rate, USDMXN (end-year) 17.20 19.69 20.00 19.50 19.00
Source: Fitch Ratings

www.fitchratings.com | June 2019 30


Poland
Poland’s real GDP growth remained robust in 1Q19, at 4.7% yoy (1.5%
Poland - Real GDP Growth
qoq) compared to 4.9% in 4Q18. Investment jumped 3.7% qoq as
the use of EU funds was stepped up, while household consumption Quarterly GDP Growth (RHS)
(% yoy) (% qoq)
posted another healthy expansion, benefiting from the strong labour Annual GDP Growth
6 2.4
market. Net exports declined, reflecting weakness in key EU trading
partners. In light of the better-than-expected start to the year, Fitch 5 2.0
has revised up its 2019 growth forecast to 4.2% from 4.0%. 4 1.6
3 1.2
Growth is expected to slow over the forecast period, reflecting
capacity constraints and a weaker external environment. Private 2 0.8
consumption and investment are forecast as the main drivers 1 0.4
of growth. The implementation of the fiscal stimulus package 0 0.0
announced in February 2019 is under way, with one-off pension -1 -0.4
bonus payments in 2Q19 and the expanded (and recurring) Family
1q12
3q12
1q13
3q13
1q14
3q14
1q15
3q15
1q16
3q16
1q17
3q17
1q18
3q18
1q19
500+ payments starting July 2019.
Source: Fitch Ratings, Eurostat, Datastream
EU funds absorption is likely to be robust in line with the current
position in the funding cycle, which will boost public investment.
The EU funds absorption rate reached an estimated 31% in early
March 2019, with over 70% of Poland’s allocation distributed to Poland - CPI, PPI and House Price Inflation
beneficiaries as of the beginning of 2019. Private investment is
(% yoy) CPI Inflation House Prices PPI
expected to continue to lag public investment growth, given capacity
and labour constraints. 10
8
Inflation has moved up, reaching 2.4% in May, close to the mid-point 6
of the National Bank of Poland’s 2.5+/-1% target. Food and fuel 4
prices and the impact of a tight labour market have underpinned 2
the rise in inflation. The impact of the fiscal package and expected
0
tax cuts will contribute to future price pressures, but this should
-2
be offset by the slowing of the economy. Fitch therefore expects
-4
inflation to stabilise around 2.5% in 2020-2021 and rates to remain
-6
on hold at 1.5% until end-2021. 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: Fitch Ratings, CSO of Poland, Eurostat, Datastream

Poland – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 4.0 5.1 4.2 3.5 3.0
Consumer Spending 3.7 4.5 3.9 4.9 4.0
Fixed Investment 4.1 8.7 7.7 0.7 0.4
Net Trade (contribution pps.) 0.0 -0.3 0.0 -0.1 0.1
CPI Inflation (end-year) 0.5 1.2 2.3 2.5 2.5
Policy Interest Rate (end-year) 1.69 1.50 1.50 1.50 1.50
Exchange Rate, USDPLN (end-year) 3.65 3.76 3.75 3.75 3.75
Source: Fitch Ratings

www.fitchratings.com | June 2019 31


Turkey
Fitch has kept the bulk of its headline forecasts for Turkey unchanged,
Turkey - Real GDP Growth
as the economy continues to adjust to the fallout from the plunge
in the currency and policy tightening last year. However, we have Quarterly GDP Growth
(% qoq) (% yoy)
altered the quarterly growth path. Growth resumed in quarterly Annual GDP Growth (RHS)
6 18
terms in 1Q19 after sharp contraction in 2H18. This rebound was 5 15
very heavily influenced by government stimulus ahead of municipal 4 12
elections; the government contribution was up by 5.1% qoq in 3 9
1Q19. Stimulus measures also supported private consumption, 2 6
which expanded for the first time since 1Q18. 1 3
0 0
Many of these measures were unwound after elections and, -1 -3
combined with renewed pressure on the lira and financing -2 -6
conditions, are likely to cause the economy to shrink qoq in 2Q19. -3 -9

1q12
3q12
1q13
3q13
1q14
3q14
1q15
3q15
1q16
3q16
1q17
3q17
1q18
3q18
1q19
Modest momentum should resume over the remainder of the year,
with the source of growth likely to be almost entirely net trade. Base
Source: Fitch Ratings, OECD, Datastream
effects mean that yoy growth will not become positive until 4Q19,
with our forecast for the full year maintained at -1.1%. A broader
recovery should take hold in 2020, but we expect growth to remain
below trend (which we estimate at 4.3%) in 2021. Turkey - Inflation and Exchange Rate
CPI Inflation
Inflation has continued to fall, reflecting weak domestic demand, and
USDTRY (RHS) (USDTRY)
hit a nine-month low of 18.7% in May. Base effects should support (% yoy)
30 7
a further fall in inflation over the second half, even though Fitch has
weakened its forecast for the lira. Concerns over domestic political 25 6
developments, a decline in reserves and deteriorating bilateral 20 5
relations with the US have put the lira under pressure again in recent
15 4
months and caused the central bank to shift its supply of funding to
the upper end of its corridor. 10 3

Renewed pressure on the currency is possible in the coming months, 5 2


with the threat of US sanctions looming. Nonetheless, Fitch assumes 0 1
that the policy rate will be lowered in the second half, in line with the
2012

2013

2014

2015

2016

2017

2018

decline in inflation. Inflation should fall into single digits in 2021. 2019
Source: Fitch Ratings, Turkstat, Haver Analytics

Turkey – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 4.9 2.6 -1.1 3.1 3.9
Consumer Spending 3.9 1.1 -4.6 3.4 4.4
Fixed Investment 4.5 -1.7 -8.6 2.1 4.6
Net Trade (contribution pps.) 1.0 3.6 3.8 0.5 -0.1
CPI Inflation (end-year) 10.3 20.3 15.0 10.0 8.0
Policy Interest Rate (end-year) 9.57 24.00 20.00 15.00 12.00
Exchange Rate, USDTRY (end-year) 3.29 5.32 6.00 6.20 6.40
Source: Fitch Ratings

www.fitchratings.com | June 2019 32


South Africa
Fitch has cut its forecast for South Africa’s GDP growth in 2019
South Africa - BER Manufacturing Survey
significantly, to 0.8% from 1.6%, after an unexpectedly sharp 1Q19
contraction in GDP (by 3.2% saar). The poor result was partly driven
Political Climate a Constraint
by load-shedding, which contributed to a sharp decline in mining and
90
manufacturing, which are heavily dependent on electricity supply.
However, output was already weak before the start of severe (level 4) 80
load-shedding in March, and it seems that low confidence may also 70

(% Balance)
have weighed on output. Notably, political concerns do not seem to 60
have eased significantly since the arrival of the new president. 50

Fitch expects some catch-up in 2Q19 as electricity supply has been 40


more reliable recently, and we view a resumption of sustained severe 30
load-shedding only as a risk scenario. We expect gross fixed investment, 20

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018
which has contracted in 11 of the last 20 quarters in yoy terms, to
gradually recover, as long-postponed replacement investments can
Source: Fitch Ratings, Bureau of Economic Research, Haver Analytics
no longer be delayed. However, potential growth remains only around
1.7%. After the May election, reforms sufficiently strong to accelerate
potential growth are still unlikely, as the government is also seeking to
address high inequality and maintain fiscal sustainability in the face of South Africa - Federal Funds Rate vs ZAR
struggling state-owned enterprises. 12m Futures Implied Fed Funds Rate
(%) USDZAR (RHS) (USDZAR)
Weaker growth in South Africa and the change in prospects for Ramaphosa
3.5 Firing of Finance 17
Fed interest rates have meant we now expect one rate cut in Firing of Finance Min. Gordhan
elected ANC
3.0 President 16
2019 followed by slow tightening in 2020 and 2021. Significant Min. Nene
electricity tariff hikes and some additional consumer taxes will put 2.5 15
some upward pressure on inflation. But weak growth will continue 2.0 14
to weigh on demand-side pressures, leaving inflation in 2021 only 1.5 13
moderately above the mid-point of the central bank’s inflation 1.0 12
target range of 3%-6%. Having fallen sharply in the wake of the poor 0.5 11
1Q19 GDP results, we expect the rand to temporarily recover. But it
0.0 10
could weaken again as market expectations about US Fed rate cuts
2014

2015

2016

2017

2018

2019
are disappointed, hitting sentiment towards emerging markets for
which the rand is a key proxy. Source: Fitch Ratings, South African Reserve Bank, CME, Haver Analytics

South Africa – Forecast Summary


(%) Ann. Av.2014-18 2018 2019f 2020f 2021f
GDP 1.1 0.8 0.8 2.1 1.8
Consumer Spending 1.4 1.8 1.6 2.3 2.0
Fixed Investment -0.1 -1.4 -0.9 3.0 3.0
Net Trade (contribution pps.) 0.2 -0.2 -0.1 -0.1 -0.2
CPI Inflation (end-year) 5.4 4.5 4.7 4.9 5.0
Policy Interest Rate (end-year) 6.39 6.75 6.50 6.75 7.00
Exchange Rate, USDZAR (end-year) 12.97 14.39 14.70 15.00 15.50
Source: Fitch Ratings

www.fitchratings.com | June 2019 33


Appendix 1: Quarterly GDP Q/Q

(%) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20

US 0.5 1.0 0.8 0.5 0.8 0.3 0.4 0.4 0.5 0.4
Euro area 0.4 0.4 0.1 0.2 0.4 0.3 0.3 0.3 0.4 0.3
China 1.5 1.7 1.6 1.5 1.4 1.5 1.4 1.5 1.5 1.5

Japan -0.1 0.6 -0.6 0.5 0.6 0.1 0.2 -0.3 0.3 0.2
UK 0.1 0.4 0.7 0.2 0.5 0.2 0.3 0.3 0.4 0.5
Germany 0.4 0.5 -0.2 0.0 0.4 0.3 0.3 0.3 0.3 0.3
France 0.3 0.2 0.3 0.4 0.3 0.4 0.4 0.4 0.4 0.3
Italy 0.2 0.0 -0.1 -0.1 0.1 0.1 0.1 0.2 0.2 0.1
Spain 0.6 0.6 0.5 0.6 0.7 0.5 0.5 0.4 0.4 0.4
Switzerland 0.8 0.7 -0.2 0.3 0.6 0.4 0.3 0.4 0.5 0.4
Australia 1.0 0.9 0.3 0.2 0.4 0.3 0.6 0.6 0.6 0.6
Canada 0.4 0.6 0.5 0.1 0.1 0.4 0.4 0.4 0.4 0.5

Brazil 0.5 0.0 0.5 0.1 -0.2 0.3 0.7 0.8 0.5 0.4
Russia 0.7 0.6 0.7 0.8 -0.5 0.2 0.6 0.5 0.4 0.5
India 1.8 1.5 1.5 1.7 1.0 2.0 1.7 1.6 1.6 1.9
Korea 1.0 0.6 0.5 0.9 -0.4 1.1 0.7 0.7 0.6 0.6
Mexico 1.3 -0.4 0.7 0.0 -0.2 0.5 0.5 0.6 0.4 0.4
Indonesia 1.3 1.3 1.2 1.2 1.2 1.2 1.3 1.2 1.3 1.2
Turkey 1.0 -0.1 -1.5 -2.4 1.3 -0.2 0.5 0.8 0.8 0.8
Poland 1.4 1.2 1.5 0.5 1.5 0.8 0.8 1.0 0.8 0.8
South Africa -0.7 -0.1 0.6 0.3 -0.8 0.9 0.5 0.5 0.5 0.5

Developed a 0.4 0.7 0.4 0.4 0.6 0.3 0.4 0.3 0.4 0.4
Emerging b
1.4 1.1 1.1 1.0 1.0 1.2 1.2 1.2 1.2 1.2
World c 0.8 0.9 0.7 0.6 0.7 0.6 0.7 0.6 0.7 0.7
a
US, Japan, France, Germany, Italy, Spain, UK, Canada, Australia and Switzerland.
b
Brazil, Russia, India, China, South Africa, Korea, Mexico, Indonesia, Poland and Turkey.
c
‘Fitch 20’ countries weighted by nominal GDP in USD at market exchange rates (3 year average)
Source: Fitch Ratings

www.fitchratings.com | June 2019 34


Appendix 2: Quarterly GDP Y/Y

(%) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20

US 2.6 2.9 3.0 3.0 3.2 2.5 2.1 2.0 1.7 1.8
Euro area 2.5 2.2 1.7 1.2 1.2 1.0 1.2 1.3 1.2 1.3
China 6.8 6.7 6.5 6.4 6.4 6.2 6.2 6.2 6.0 6.0

Japan 1.4 1.4 0.1 0.3 0.9 0.5 1.4 0.6 0.3 0.4
UK 1.2 1.4 1.6 1.4 1.8 1.6 1.1 1.2 1.1 1.4
Germany 2.1 2.0 1.2 0.6 0.7 0.6 1.1 1.4 1.3 1.3
France 2.4 1.9 1.5 1.2 1.2 1.4 1.6 1.6 1.6 1.6
Italy 1.4 1.0 0.5 0.0 -0.1 0.0 0.2 0.4 0.5 0.5
Spain 2.9 2.6 2.5 2.3 2.4 2.3 2.2 2.1 1.8 1.7
Switzerland 2.9 3.4 2.4 1.5 1.7 1.1 1.5 1.6 1.5 1.5
Australia 3.1 3.1 2.8 2.4 1.8 1.3 1.6 2.0 2.2 2.5
Canada 2.2 1.8 2.0 1.6 1.3 1.1 1.1 1.4 1.7 1.7

Brazil 1.2 0.9 1.3 1.1 0.5 0.7 1.0 1.7 2.3 2.5
Russia 1.9 2.2 2.2 2.7 0.5 1.2 1.1 0.8 1.6 1.9
India 8.1 8.0 7.0 6.6 5.8 6.3 6.6 6.5 7.1 7.0
Korea 2.8 2.8 2.0 3.1 1.8 2.1 2.3 2.0 3.1 2.6
Mexico 1.2 2.6 2.5 1.7 1.2 1.1 0.9 1.5 2.0 1.9
Indonesia 5.1 5.3 5.2 5.2 5.1 4.9 5.0 5.0 5.1 5.1
Turkey 7.4 5.3 1.8 -3.0 -2.6 -2.9 -0.9 2.4 2.0 3.0
Poland 5.2 5.3 5.2 4.9 4.7 4.3 3.6 4.1 3.4 3.5
South Africa 0.7 0.1 1.3 1.1 0.0 1.1 1.0 1.2 2.5 2.0

Developed a 2.2 2.3 2.1 1.9 2.1 1.7 1.6 1.6 1.4 1.5
Emerging b
5.5 5.3 5.0 4.7 4.4 4.5 4.5 4.7 4.9 4.9
World c 3.4 3.4 3.1 3.0 3.0 2.7 2.7 2.7 2.7 2.7
a
US, Japan, France, Germany, Italy, Spain, UK, Canada, Australia and Switzerland.
b
Brazil, Russia, India, China, South Africa, Korea, Mexico, Indonesia, Poland and Turkey.
c
‘Fitch 20’ countries weighted by nominal GDP in USD at market exchange rates (3 year average)
Source: Fitch Ratings

www.fitchratings.com | June 2019 35


Contacts
Economics

Brian Coulton
Chief Economist Robert Ojeda-Sierra
Tel: +44 20 3530 1140 Tel: +44 20 3530 6094
brian.coulton@fitchratings.com robert.ojeda-sierra@fitchratings.com

Maxime Darmet-Cucchiarini Pawel Borowski


Tel: +44 20 3530 1624 Tel: +44 20 3530 1861
maxime.darmet@fitchratings.com pawel.borowski@fitchratings.com

Sovereign Ratings

Charles Seville Shelly Shetty


Americas Americas
Tel: + 1 212 908 0277 Tel: +1 212 908 0324
charles.seville@fitchratings.com shelly.shetty@fitchratings.com

Stephen Schwartz Paul Gamble


Asia Emerging Europe
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stephen.schwartz@fitchratings.com paul.gamble@fitchratings.com

Michele Napolitano Jan Friederich


Western Europe Middle East and Africa
Tel: +44 20 3530 1882 Tel: + 852 2263 9910
michele.napolitano@fitchratings.com jan.friederich@fitchratings.com

www.fitchratings.com | June 2019 36


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