Sovereigns

Global

What if the US Falls Back into Recession?

The Potential Impact of a US Double Dip on the Global Economic Recovery
Special Report
Renewed Recession Risk: Data revisions and a raft of weak economic indicators prompted Fitch Ratings to downgrade its forecasts for US growth to 1.8% in 2011 from 2.6% and 2.3% in 2012 from 2.8%. With the emergence of consumer retrenchment in the context of weak labour and housing markets, and a re-intensification of financial market stress related to the euro area crisis, the chance of the US tipping back into recession has increased. Scenario Considers Impact: Although a double-dip recession in the US is not Fitchs base case, the agency has simulated the effects of this scenario using an economic modelling tool from Oxford Economics (OE). In the simulation, US growth falls to 1% in 2011, negative 0.6% in 2012, and 1.5% in 2013. Direct Effect Through Trade: The stress test focuses on the direct effect of a US slowdown through trade channels, and does not seek to quantify second-round effects resulting from heightened risk aversion. Therefore, stress test results reflect the minimum likely impact of a US recession on the global economy. The policy response function in the model is also constrained for major advanced economies (MAEs), with interest rates already low and fiscal policy constrained by higher post-crisis debt. Growth Deceleration, Oil-Price Drop: The impact of the scenario on the world economy is material. Cumulative GDP over 2011-2013 would be a minimum of 2.1 percentage points (pp) lower compared with Fitchs baseline scenario, with GDP growth 0.3pp lower in 2011, 1.2pp lower in 2012, and 0.7pp lower in 2013. At the same time, a contraction in global oil demand would lead to a decline in oil prices to around USD90/barrel in 2012 and USD85/barrel in 2013, against the baseline projection of USD100/barrel for 2012 and 2013. Neighbours Most Vulnerable: Mexico and Canada would be severely affected by slower US growth. From 2011 to 2013, the output loss compared with base case estimates is 4.3pp in Mexico and 3.2pp in Canada. This compares to a cumulative US output loss of 4.9pp against the base case. Growth in China Slows: In China, GDP would be 2.7pp lower on a cumulative basis (20112013) compared with the Fitch base case, pulling Chinas real GDP growth to the belowpotential level of 7% in 2012 and 2013, with repercussions extending to the rest of the world. Emerging Asia Hit: Small and open emerging Asian economies with extensive trade links to the US and China are highly vulnerable to a US double-dip scenario. With total US trade equivalent to around 20% of GDP, Singapore, the smallest of the emerging Asian economies, would experience the largest cumulative negative shock to GDP of 4.1pp from 2011 to 2013. Other Regions Follow Suit: In central and eastern Europe, growth would weaken mainly as a result of slower euro area growth and heightened global risk aversion, while the Middle East and Africa are adversely affected by the decline in oil and other commodity prices. Latin American economies (most notably Mexico, Central America, and the Carribean) would suffer from deteriorating US trade, and lower tourism and remittances. Risk for Advanced Economies: On a cumulative basis (2011-2013), the euro area, UK, and Japan slow by 1.6 pp, 0.7 pp and 0.9 pp against the baseline scenario, respectively. But the full effect on MAEs may well be larger due to second-round effects including through interdependent financial sectors. With Fitchs baseline growth projections at below 2% for the euro area and UK in 2011 and 2012, and at 0.5% for Japan in 2011, the risk of a US downside scenario tipping the MAEs into recessions is not negligible.

Related Research
United States of America (August 2011) US Can Tolerate More Debt than Other AAA Sovereigns (August 2011) US Public Finance: Overview and Outlook (August 2011) Global Economic Outlook (June 2011) Sovereign Review and Outlook (June 2011) Global Economic Outlook (March 2011) Global Economic Outlook (October 2010)

Analysts
Mariah Malas-Mroueh +44 20 3530 1081 mariah.malas-mroueh@fitchratings.com Ed Parker +44 20 3530 1176 ed.parker@fitchratings.com David Riley +44 20 3530 1175 david.riley@fitchratings.com

www.fitchratings.com

25 August 2011

Sovereigns
Baseline Forecasts
Updated US Growth Forecasts
In August 2011, Fitch revised down US growth forecasts to 1.8% in 2011 from 2.6% previously, and 2.3% in 2012 from 2.8% previously. The revisions reflect a combination of transient factors including the negative impact of higher oil prices, the Japanese natural disasters in 2011 and more persistent headwinds stemming from a deleveraging economy and still fragile housing and labour markets. These revised forecasts are used as the baseline scenario in the stress test presented in this report.
Figure 1

Baseline Scenario for US Growth

Consumption Investment Yearly Forecasts (% change yoy) 2011 2.3 2.5 2012 2.2 5.1 2013 3.2 5.9 Quarterly Path Forecasts (% change qoq) Q311 0.8 0.8 Q411 0.6 1.0 Q112 0.6 1.2 Q212 0.6 1.3 Q312 0.4 1.7 Q412 0.5 2.7
Source: Fitch

Government Spending -1.3 -1.5 -1.0

Exports 7.8 5.6 6.0

Imports 5.4 4.7 5.1

Real GDP 1.8 2.3 2.9

Figure 2

US Recession/Recovery
57 73 90 (GDP decline index T = 100) 120 110 100 90 T T+4 T+8 T+12 T+16 Source: Fitch 60 82 Latest

-0.7 -0.6 -0.4 -0.2 -0.1 -0.4

1.9 1.7 1.5 1.2 0.7 0.8

1.0 1.5 1.2 1.5 1.0 0.5

0.7 0.5 0.6 0.5 0.6 0.8

Figure 3

Household Deleveraging
(Market debt/Disposable Income) 135 125 115 105 95 85 1995 1999 2003 Source: Datastream

The risk of the US tipping back into recession has increased. Many of the shocks that were identified as potential triggers for a double dip in Fitchs Global Economic Outlook, October 2010 (GEO; see Related Research ) have come to pass, including consumer retrenchment in the context of weak labour and housing markets, a re-intensification of financial market stress related to peripheral euro area sovereigns, and a geopolitically induced spike in oil prices. Historically, when the US economy slowed to annualised growth of less than 2%, as it did in the first half of 2011, in nearly half of all such occasions the economy subsequently fell into recession. For Fitchs full US growth outlook see the Full Rating Report under Related Research.

Baseline Scenario for World Economy

Although Fitch updated its US growth forecasts as part of its US credit analysis review in August 2011, the agencys baseline scenario for other countries is derived from the June 2011 GEO (see under Related Research). These forecasts do not incorporate recent data releases for countries other than the US, which have also been weaker than expected. Fitch updates its global economic forecasts quarterly and publishes them in the GEO publication series.
2007 2011
Figure 4

Global Forecast Summary June 2011 Baseline*

(%) GDP growth US (Revised) Euro area Japan UK Averagea Emerging markets BRICsa, b Worlda
*

2010 2.9 1.7 4.0 1.3 2.4 6.8 8.4 3.8

2011f 1.8 1.7 0.5 1.4 1.6 5.7 6.9 2.9

2012f 2.3 1.8 2.7 1.7 2.1 5.7 6.9 3.3

2013f 2.9 2.1 1.3 2.1 2.3 5.7 6.9 3.4

Related Criteria
Sovereign Rating Methodology (August 2011)

Except US growth projections, updated in the context of the annual US credit review. Aggregate average and world growth figures incorporate newly revised US growth forecasts. a Weighted by 2007 GDP at market exchange rates. b Brazil, Russia, India and China. Source: Fitch

What if the US Falls Back into Recession? August 2011

Sovereigns
Downside Stress Case Scenario in US
With the help of a global economic modelling tool from OE, Fitch has simulated a scenario where the US economy falls back into recession on a sequential quarterly basis. The results focus on the potential impact of this downside scenario on the global economic recovery. In the simulation, the economy begins contracting in Q311, decreasing by an average of 0.6% for three consecutive quarters until Q112, before gradually easing back to growth. Growth in subsequent quarters until 2013 remains anaemic (at below the potential growth rate), in line with Fitchs baseline view of a shallow recovery in the medium term. Real GDP grows by around 1% in 2011 (Fitchs baseline is 1.8%), negative 0.6% in 2012 (baseline is 2.3%), and 1.5% in 2013 (baseline is 2.9%). The cumulative shock to US GDP output from 2011 to 2013 is equal to around 5pp against Fitchs baseline scenario.
Figure 5

GDP Growth Trajectory in 'Double Dip' Scenario

(qoq change, %) 4 2 0 -2 Q207 Q208 Q209 Q210 Q211 Q212 Q213 Source: Oxford Economics, Fitch Periods of Recession Real GDP growth (RHS) Downside Scenario

Figure 6

US Downside Scenario vs. Fitch Baseline

Real GDP Growth (% yoy) 2011f 2012f 2013f
Source: Fitch, OE

Baseline 1.8 2.3 2.9

Downside 1.0 -0.6 1.5

GDP Components and Comparison with Previous US Recessions

The envisaged total 1.7pp contraction in GDP in the double-dip scenario is mild compared to the recession of 2008-2009 where output declined by over 5pp, and of 1981-1982 where output declined by almost 3pp. The double-dip scenario is slightly steeper than the recession of 1990-1991 where output declined by 1.4pp. The main GDP components dragging down growth in the double dip scenario are consumption and investment. This translates into lower US imports, which feeds into slower global demand and a corresponding drop in US exports. The effect on net exports is maintained at neutral given offsetting declines in both exports and imports. Government spending does not change from the agencys baseline scenario, which already factors in a negative to neutral government spending contribution to growth. The decline in US imports resulting from weakened domestic demand is the main channel which feeds into lower global growth in the model. This decline is calculated based on an elasticity of imports to domestic demand. From Q311 until Q112 imports register a total 3.5% decrease, compared to an 18% decline during the 2008-2009 recession, and a 4.4% drop during the 1981-1982 recession. The decline in imports in the double dip scenario is comparable to the 3.8% import drop during the 1990-1991 recession.

Figure 7

US Imports
USD Bn 650 550 450 350 2005 2008 So urce: Fitch, OE 201 f 1 B aseline Do wnside scenario

What if the US Falls Back into Recession? August 2011

Sovereigns
General Observations on Stress Test Results
First Against Second-Round Effects
The model considers the effect of a US slowdown on the global economy through direct links, focusing mainly on trade of goods and services. According to the World Trade Organization, the 2010 US share of world imports was around 13%, and its share of world exports was almost 10%. Therefore, a slowdown in US trade is a major channel through which a slowdown in the US economy would affect the global economic recovery. The model does not take into consideration the effect on capital flow retrenchment and other second-round effects resulting from heightened risk aversion. This would materially add to the direct economic effects. In a downside scenario, loss of consumer and business confidence would be likely to further depress global private sector consumption, while concerns about sovereign risk in the euro area and US would increase, probably leading to an amplification of financial sector and market volatility. In such a scenario, it is also plausible that USs safe haven qualities might lead to a decline in US bond yields. Second-round effects may be the largest in MAEs where links through inter-dependent financial sectors are extensive. They would also be significant for Asian economies, where the regionalisation of supply chains means these countries are likely to be subject to significant negative exposure from each other and through the impact on Chinese demand for manufacturing sector inputs, as was the case in 2008. Therefore, Fitch emphasises that the results presented in Stress Test Results below are more likely to reflect the minimum impact of a US recession on the global economy.

Policy Response
With the policy interest rate in MAEs near zero and with fiscal policy already constrained by higher post-crisis debt, the policy response function in the model is constrained for the MAEs. This highlights the policy challenge at this point in the global recovery, with the capacity of policymakers to respond to economic weaknesses with counter measures considerably weakened. For emerging markets where scope for monetary and fiscal policy stimulus is still intact, policy responses help to cushion the impact of a US economic slowdown on growth.

Figure 8

Oil Dependence- Select Countries

(Annual net position, % of GDP) Saudi Arabia Norway Russia Mexico Canada Indonesia USA Turkey China Euro area Japan Poland India Korea Taiwan -10 15 40 65

Impact on Oil Prices

A contraction in global demand for oil resulting from the downside scenario would lead to a decline in oil prices against Fitchs baseline forecasts. The oil price is projected to decline to around USD90/barrel in 2012 and USD85/barrel in 2013, compared with the baseline projection of USD100/barrel for 2012 and 2013. Although Fitch expects the decline to ease the economic slowdown by boosting consumption for oil consumers (including in the US and euro area), it worsens the shock for oil exporters, who benefit from higher oil prices. Prices for other commodities also decline in the model as a result in softening global demand.
Figure 9

World Oil Price

Brent Crude Spot, USD/Barrel
115 90 65 40 15 2000 2001 2002 Source: Fitch, OE 2003 2004 2005 2006 2007 2008 2009 2010 2011f 2012f 2013f Baseline Downside scenario

Source: Fitch, US Energy Information Administration. 2009 Data. Net Position = Production Consumption.

What if the US Falls Back into Recession? August 2011

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Stress Test Results
Impact on Global Economy
The direct impact of the US stress test scenario on world economic growth is material. Cumulatively for 2011-2013, world output declines by an estimated minimum of 2.1pp against Fitchs baseline scenario. The impact would also be material, albeit milder, on emerging markets, which would suffer an approximate cumulative 1.7pp shock to output against the Fitch baseline.
Figure 10

Aggregate Impact on Global Growth

(% Real GDP Growth) Base case Worlda BRICsa, b Emerging markets Downside scenario Worlda BRICsa, b Emerging markets Difference Worlda BRICsa, b Emerging markets
a b

2011f 2.9 6.9 5.7

2012f 3.3 6.9 5.7

2013f 3.4 6.9 5.7

2.6 6.8 5.6

2.1 5.8 4.8

2.7 5.9 5.0

-0.3 -0.1 -0.1

-1.2 -1.1 -0.9

-0.7 -1.0 -0.7

Weighted by 2007 GDP at market exchange rates Brazil, Russia, India and China Source: Fitch

Highly Exposed Neighbours Most Vulnerable: Canada and Mexico

Figure 11

Top Trading Partners

(% of Total) Other 35 Canada 17 Euro area 13 China 13

Of all Fitch rated sovereigns Mexico is the most dependent on the US economy. In 2010 Fitch estimates that US imports originating in Mexico were equivalent to over 20% of Mexican GDP, and exports from the US to Mexico represented 16% of Mexican GDP. In addition to its trade links, the US is also the largest source of foreign direct investment in Mexico, and workers remittances from the US constitute a significant contribution to the Mexican economy. As a result, Mexico is highly vulnerable to a slowdown in US growth. According to the model estimates, the cumulative shock to output from 2011 to 2013 is estimated to be over 4pps against the baseline. This brings the Mexican GDP growth rate down to 0.9% in 2012 against baseline growth of 3.8% for the same year, and 2.8% in 2013 against baseline growth of 4%.
Figure 12

UK 3 Japan 6 Mexico 12

Source: U.S. Department of Commerce, Bureau of the Census, Foreign Trade

Mexico and Canadas US Inter-Dependence

(% of GDP) Exports to the US Imports from the US Cumulative negative shock to GDP vs. baseline (2011-2013)
Source: Fitch, OE

Mexico 22.1 15.7 -4.3

Canada 17.6 15.8 -3.2

Canada has extensive economic ties with the US in the form of a two-way flow of goods, services and people across the border. Canada is the USs second largest source of imports, and its largest destination for exports. In 2010 Fitch estimates that around 60% of Canadian exports went to the US, while US goods and services comprised around half of Canadian imports. In the double-dip stress case scenario, on a cumulative basis (2011-2013), output in Canada suffers a 3.2ppt setback against the baseline. This translates into real GDP growth of around 1% in 2012 and 2013 against baseline growth projections of around 2.7% for the same period. The shock is amplified in both Mexico and Canada as both countries are net oil exporters and would be adversely affected by the decline in oil prices.

What if the US Falls Back into Recession? August 2011

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Figure 13

Impact on Mexico and Canada

% US Mexico Canada
Source: Fitch, OE

2011f Slowdown New GDP vs. baseline Forecast -0.8 1.0 -0.4 -0.2 3.8 2.7

2012f Slowdown New GDP vs. baseline Forecast -2.9 -0.6 -2.8 -1.6 1.0 1.2

2013f Slowdown New GDP vs. baseline Forecast -1.4 1.5 -1.1 -1.4 2.9 1.4

Chinese Trade and Links to Global Economy

The impact of a downside US growth scenario on the Chinese economy would be significant, with repercussions extending to the rest of the world. According to 2010 data, 19% of US imports come from China, and total trade with the US represents around 8% of Chinese GDP. At the same time, Chinas contribution to the world economy has been growing rapidly, with its share of world GDP on a purchasing power parity basis rising from 2% in 1980 to nearly 12% in 2008. Contribution to global trade also increased, from a negligible 1% in 1980 to more than 8% over the same period. Continued robust growth in China is vital to the fragile and uneven recovery of the world economy. Fitch explored the effects of a slowdown in Chinese growth on the global economy in its June 2011 GEO (see under Related Research).
Figure 14

China and US Inter-Dependence

(% of GDP) Exports to the US Imports from the US Cumulative Negative Shock to GDP vs. Baseline (2011-2013)
Source: Fitch, OE

6.2 1.5 -2.7

Figure 15

If there were a doubledip recession in the US, Chinese GDP growth would slow to about 7% in 2012 and 2013. Although in absolute terms this is still robust, Fitch judges that this rate would be below Chinas growth potential and so could lead to some weakening in labour markets. This could raise risks, whether through pressure to offset slowdowns through expansionary policies, or through social unrest.
Figure 16

Asian Economies - Large Exposure to US Trade Links Cumulative Negative Shock to

GDP vs. Baseline (2011-2013) Total US Trade/National Income 0.6 3 1.9 8 1.3 9 1.0 10 2.0 14 2.9 14 1.7 17 3.7 21 20

Impact on China
%
US China
Source: Fitch, OE

2011f Slowdown New GDP vs. baseline Forecast -0.8 1.0 -0.1 8.6

2012f Slowdown New GDP vs. baseline Forecast -2.9 -0.6 -1.5 7.0

2013f Slowdown New GDP vs. baseline Forecast -1.4 1.5 -1.1 6.9

Indonesia China Korea Thailand Hong Kong Taiwan Malaysia Singapore

Emerging Asia Most Vulnerable to Slowdown

Relatively small and open Asian economies with large trade links to the US and China are the most vulnerable to a US double dip. Singapore, the smallest of the emerging Asian economies, experiences the steepest cumulative negative shock to output of around 4pp from 2011-2013 compared to the baseline. Taiwan is also highly vulnerable, with trade links equivalent to around 14% of GDP, resulting in a cumulative output loss of 3.4pp against Fitchs baseline. In light of the oil importer status of Asian economies, the negative impact is somewhat offset through lower oil and commodity prices, although as mentioned, secondround effects are likely to be significant.

0 5 10 15 Source: Oxford Economics, Fitch

What if the US Falls Back into Recession? August 2011

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Figure 18

Impact on Emerging Asia

% GDP US Singapore Taiwan China Malaysia South Korea Thailand Hong Kong Indonesia 2011f Slowdown New GDP vs. baseline Forecast -0.8 1.0 -0.2 -0.3 -0.1 -0.1 -0.2 -0.1 -0.1 -0.1 5.8 4.8 8.6 4.9 4.0 3.9 6.0 6.1 2012f Slowdown New GDP vs. baseline Forecast -2.9 -0.6 -2.4 -1.6 -1.5 -1.0 -1.3 -1.0 -1.2 -0.7 3.1 3.8 7.0 4.5 4.0 3.5 3.8 5.6 2013f Slowdown New GDP vs. baseline Forecast -1.4 1.5 -1.5 -1.5 -1.1 -1.4 -0.9 -1.1 -0.8 -0.6 4.5 4.1 6.9 3.6 3.6 3.5 4.3 5.9

Source: Fitch, OE. In order of magnitude of cumulative loss to output (highest to lowest).

Second-Round Effects Likely to Compound Shock for MAEs

The output shock for MAEs is smaller than for more highly exposed Asian countries, with the large size and diversification of these advanced economies making their trade links more resilient to a US double dip scenario. However, the effect is likely to be more significant than other countries and regions when taking into consideration second-round effects including through the inter-dependent financial sectors. Therefore, the results below are considered to be the minimum negative impact on MAEs. Fitchs baseline growth projections are below 2% for the euro area and UK in 2011 and 2012, and at 0.5% for Japan in 2011. Consequently, the risk of a US downside scenario tipping the MAEs into recessions is not negligible. Although the euro area constitutes the third largest source of US imports, its total trade with the US relative to its total output is relatively small, accounting for around 3.5% of total euro area GDP in 2010. For the blocs largest economies, Germany and France, exports to the US in 2010 accounted for around 6% of total exports for each country, and around 2.5% of German GDP and 1.5% of French GDP. As a whole, output in the euro area falls by a cumulative 0.7pp against Fitchs baseline scenario from 2011 to 2013. The shock is mild because it takes into account only first round effects (with second round effects expected by Fitch to be more significant). Also, with the euro areas status as a major net oil importer, the effect on growth is cushioned by the expected decline in oil prices. The offsetting effect of lower oil and commodity prices also applies to the UK and Japan. In the UK, the economy is more dependent on the US than its euro area peers, with total US trade in 2010 accounting for 4.4% of UK national output. The UK was also the USs sixth-largest trading partner in both imports and exports. Still, the cumulative impact on output (through direct effects) is limited, with GDP losing 1pp in 2011 to 2013, compared with the Fitch baseline. With trade with the US equivalent to over 3% of Japanese GDP in 2010, Japans economy is estimated to also lose around 1pp in 2011 to 2013 against Fitchs baseline scenario.

Figure 19

First-Round Impact on Major Advanced Economies (MAEs)

2011f (%)
US Euro area Japan UK Average
Source: Fitch, OE

2012f
New GDP Forecast 1.0 1.7 0.4 1.4 1.2 Slowdown vs. baseline -2.9 -0.4 -0.5 -0.5 -1.5 New GDP Forecast -0.6 1.4 2.2 1.2 0.7

2013f
Slowdown vs. baseline -1.4 -0.3 -0.5 -0.5 -0.8 New GDP Forecast 1.5 1.8 0.8 1.6 1.5

Slowdown vs. baseline -0.8 0.0 -0.1 0.0 -0.3

What if the US Falls Back into Recession? August 2011

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Impact on Russia, India and Brazil
Although US trade with Russia comprises only around 2% of Russian GDP, the Russian economy is still adversely affected under the scenario through its trade ties with China (around 4% of GDP) and the EU (over 20% of GDP). In addition, as the worlds third-largest net exporter of oil (as a percentage of national income), most of the shock is manifested through lower oil prices, which feed into lower general government and current account balances, as well as a substantial effect on confidence. Fitch projects a cumulative output shock in Russia of 3.5pp in 2011 to 2012 compared with the baseline, similar to contractions experienced by highly-exposed Canada and Taiwan. Conversely in India, which represents one of the worlds largest net importers of oil, the economy experiences one of the mildest output losses when considering direct effects as exposure to a US slowdown is offset by benefits of lower oil prices. As a result, the overall decline in GDP against Fitchs baseline scenario is less than 0.5pp for 2011-2013. In Brazil, with the US and China as main trading partners, accounting for around 3% of GDP each, the cumulative output shock from 2011 to 2013 is estimated at around 1pp against Fitchs baseline scenario.
Figure 20

Impact on Brazil, Russia, India & China (BRICs)

(%)
Brazil Russia India China
Source: Fitch, OE

2011f Slowdown New GDP vs. baseline Forecast -0.3 3.7 -0.1 4.4 -0.1 7.6 -0.1 8.6

2012f Slowdown New GDP vs. baseline Forecast -0.3 4.2 -1.5 2.5 -0.4 7.8 -1.5 7.0

2013f Slowdown New GDP vs. baseline Forecast -0.5 4.5 -1.9 2.1 0.2 8.9 -1.1 6.9

Impact on Other Major Economies and Regions

Other regions would be adversely affected by downside growth in the US. Growth in central and eastern Europe would weaken mainly as a result of slower euro area growth and heightened global risk aversion. The Middle East and Africa are also adversely affected, particularly by the decline in oil and other commodity prices. In South Africa, the cumulative output shock from 2011 to 2013 is estimated at around 1.5pp against the Fitch baseline, bringing the annual GDP growth rate to around 3.5% each year between 2011 and 2013. In Latin America, economies with large US trade ties and those dependent on the inflow of US tourism and remittances (most notably Mexico, Central America, and the Caribbean), would be the most affected under a double dip scenario. Commodity exporters (including oil, metals, and grains) would also face lower growth prospects under deteriorating terms of trade due to a China slowdown. For European countries outside the euro zone, the US is a major trading partner of Switzerland, with total trade equivalent to over 7% of Swiss GDP in 2010. Switzerland is also the euro areas fifth-largest trading partner. As such, Switzerland is estimated to suffer a cumulative output shock of 1.2pp over 2011-2013 against Fitchs baseline. The average cumulative output loss in Norway, Sweden and Denmark is around 1pp against Fitchs baseline scenario for 2011-2013. The impact on Norway, the worlds second-largest net oil exporter (as a percentage of national income), is compounded by the decline in oil prices.

What if the US Falls Back into Recession? August 2011

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Figure 21

Impact on Select Major Economies

2011f Slowdown New GDP vs. baseline Forecast Other Europe (Outside of euro area) Denmark -0.1 1.4 Norway 0.0 3.0 Sweden -0.1 3.9 Switzerland 0.0 2.7 Central and Eastern Europe Turkey 0.0 6.0 Poland 0.0 4.2 Czech Rep. -0.1 2.2 Hungary -0.1 2.7 %
Source: Fitch, OE

2012f Slowdown New GDP vs. baseline Forecast -0.6 -0.7 -0.5 -0.6 -0.1 -0.5 -0.8 -1.1 1.1 2.3 2 1.7 4.9 3.5 1.2 2.1

2013f Slowdown New GDP vs. baseline Forecast -0.6 -0.2 -0.3 -0.6 -1.1 -0.4 -0.3 0.2 1.4 2.8 2.2 1.7 3.9 3.3 2.7 3.4

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What if the US Falls Back into Recession? August 2011