Sovereigns

Economics
Global

Global Economic Outlook – March

2024
Growth Outlook Improves, but Inflation Persists

Special Report │ 13 March 2024 fitchratings.com 1

 Sovereigns
Economics
Global

Global Economic Outlook – March 2024

Growth Outlook Improves, but Inflation Persists
Fitch Ratings has raised its 2024 global GDP growth forecast by
“Many seem keen to characterise the surprising strength 0.3pp to 2.4%, as near-term world growth prospects have improved.
of US growth in 2023 as a ‘soft landing’. But with growth This reflects a sharp upward revision to our US forecast to 2.1%,
last year clearly boosted by a sharp deterioration in from 1.2% in the December 2023 Global Economic Outlook (GEO).
imbalances in the economy, that label doesn’t feel quite Stronger US growth prospects outweigh a marginal cut to our China
right.” 2024 growth forecast – to 4.5% from 4.6% – and a minor revision to
Brian Coulton, Chief Economist, Fitch Ratings our eurozone forecast, to 0.6% from 0.7%. Growth in emerging
markets excluding China (EM ex China) has been revised up by
0.1pp to 3.2%, with forecasts raised for India, Russia and Brazil.
We still expect world growth in 2025 to edge up to 2.5% (unchanged
from December GEO) as the eurozone finally recovers – on a pick-
up in real wages and consumption – but as US growth slows.

Unprecedented US Pro-Cyclical Fiscal Easing

An unprecedented pro-cyclical widening in the US fiscal deficit in
2023 boosted domestic demand and helped explain the surprising
resilience of GDP growth. But we expect the fiscal impulse to fade
in 2024 and household income growth to slow. And with lagged
effects from last year’s monetary tightening still to come through,
as real interest rates rise, we expect quarter-on-quarter (qoq)
growth to slow to a significantly below-trend rate later this year.

Germany’s Malaise Is Weighing on Europe

The eurozone continues to stagnate, with Germany’s recession
weighing on France and the rest of the bloc. The German economy
faces structural growth constraints but it has also been hit by a
string of major shocks that are unlikely to be repeated. Growth
should pick up in the medium term as the ECB cuts rates, world
trade recovers and the impact of the energy shock fades.

Deflationary Pressures Are Rising in China

China’s property collapse continues unabated – housing sales now
Related Research look likely to fall sharply again this year – and evidence of
Global Economic Outlook (December 2023) deflationary pressures is rising. But fiscal easing is being stepped up
Germany: Medium Term Recovery from Lull (February 2024) materially and this has cushioned the impact on the GDP forecast.
China Unveils More Fiscal Support; 2024 Growth Target Still
Challenging (March 2024)
Inflation Persistence in US and Europe
US core inflation momentum has recently picked up and we have
raised our end-2024 US inflation forecast by 0.3pp, to 2.9%. In the
eurozone, better progress has been made in reducing core inflation
Analysts but, as in the US, services and wage inflation remain uncomfortably
high from the perspective of achieving the inflation target. The jump
Brian Coulton
in shipping costs is adding upside risks to core goods inflation.
+44 20 3530 1140
brian.coulton@fitchratings.com
Fed Is Holding Out; ECB to Blink First
Pawel Borowski We expect the US Federal Reserve and ECB to cut rates three times,
+44 20 3530 1861 by a total of 75bp, by year-end. But both want to see more evidence
pawel.borowski@fitchratings.com that recent disinflation progress is durable before embarking on the
policy-easing process. We have pushed back the date of the first
Fed cut to July from our previous expectation of June. We have also
pushed back the date of the first ECB cut to June from April.

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 Sovereigns
Economics
Global

Global Forecast Summary

Annual Average
(%) 2019-2023 2022 2023 2024F 2025F
GDP Growth
US 2.1 1.9 2.5 2.1 1.5
Eurozone 1.1 3.4 0.4 0.6 1.6
China 5.0 3.0 5.2 4.5 4.5
Japan 0.2 0.9 1.9 0.6 0.7
UK 0.9 4.3 0.1 0.2 1.7
Developed a 1.4 2.4 1.8 1.4 1.5
Emerging b 3.9 3.3 4.7 3.9 4.1
Emerging ex China 2.6 3.7 4.0 3.2 3.6
c
World 2.4 2.7 2.9 2.4 2.5

Inflation (end of period)

US 4.0 6.5 3.4 2.9 2.4
Eurozone 3.6 9.2 2.9 2.3 2.0
China 1.7 1.8 -0.3 0.7 1.3
Japan 1.2 4.0 2.6 2.3 2.0
UK 4.3 10.5 3.9 2.5 2.5

Interest Rates (end of period)

US 2.05 4.50 5.50 4.75 3.50
Eurozone 0.93 2.50 4.50 3.75 3.00
China d 2.94 2.75 2.50 2.25 2.25
Japan -0.10 -0.10 -0.10 0.10 0.25
UK 1.47 3.50 5.25 4.50 3.50
US 10-Year Yield 2.26 3.88 3.88 4.30 4.00

Exchange Rates and Oil

Oil (USD/barrel) 71.7 98.6 82.1 80.0 70.0
USDJPY (end-period) 119.5 132.7 141.9 145.0 135.0
USDEUR (end-period) 0.90 0.94 0.90 0.93 0.93
GBPUSD (end-period) 1.28 1.21 1.27 1.25 1.20
USDCNY (end-period) 6.82 6.99 7.14 7.20 7.30
a
US, Japan, France, Germany, Italy, Spain, UK, Canada, Australia and Switzerland
b
Brazil, Russia, India, China, South Africa, Korea, Mexico, Indonesia, Poland and Turkiye
c
‘Fitch 20’ countries weighted by nominal GDP in US dollars at market exchange rates (three-year average)
d
One-year medium-term lending facility
Source: Fitch Ratings

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 Sovereigns
Economics
Global

World GDP Growth Forecast Highlights

(%, yoy) Developed Emerging World World growth prospects have improved and we have raised our
10 2024 global GDP growth forecast by 0.3pp to 2.4%. This reflects a
8
substantial upward revision to our US growth forecast, which more
than offsets marginal cuts to our China and eurozone forecasts.
6
We expect world growth to edge up to 2.5% in 2025 as the eurozone
4 finally recovers, on a rebound in real wages, and as US growth slows.
2 Forecasts for 2025 have changed little since our December GEO.
0 We have revised up the US growth forecast for 2024 to 2.1% from
1.2% in December. This reflects strong data for 4Q23 and evidence
-2
that growth is holding up well in 1Q24, as reflected in our new
-4 Nowcast estimates. However, we still expect qoq growth to slow
markedly from 2Q24, to an annualised rate below 1%. This reflects
-6
a fading fiscal impulse, lagged effects from earlier monetary
2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024F

tightening – as real interest rates rise – and a slowdown in

Source: Fitch Ratings household income growth.
We have trimmed China’s 2024 forecast, to 4.5% from 4.6% in the
Revisions to Annual GDP Growth Forecasts December GEO, reflecting a deterioration in the outlook for the
2024 2025
property sector and growing evidence of deflationary pressures.
1.0
But the authorities have been stepping up fiscal support and this has
cushioned the impact on the forecast.
(Revisions since Dec '23 GEO, pp)

0.8
The eurozone economy continues to stagnate and we have lowered
0.6
the 2024 forecast by 0.1pp to 0.6%, after growth of just 0.4% in
0.4 2023. Germany is in recession and is not expected to recover until
0.2
2Q24. We have cut its 2024 growth forecast by 0.3pp to just 0.1%.
We have cut France’s growth forecast by 0.2pp to 0.8% as weakness
0.0 in Germany spills over. But Italy and Spain are faring better and we
-0.2 have lifted our forecasts slightly.
-0.4 We have cut the UK forecast by 0.1pp to 0.2% and this follows a
United Kingdom

EM ex China
Eurozone

Spain
France

China

Brazil
Poland

Russia
Turkiye

DM
Germany

United States
Mexico

Indonesia

India (FY)
Switzerland

Canada

downward revision to growth last year to just 0.1%. We have also

Japan

Australia

Italy

World
South Africa
South Korea

cut Japan’s forecast, by 0.2pp to 0.6%, as data point to weaker

growth in 1Q24 than we had expected. By contrast, we have raised
Canada’s forecast by 0.3pp to 0.8% on positive data and stronger
Source: Fitch Ratings
near-term US growth prospects.
Prospects for EM ex China have also brightened, particularly in
India, where we now expect growth to reach 7.8% in the fiscal year
GDP 4Q23 Outturns Versus Forecasts
ending March 2024 (FY2023-24) and 7.0% in FY2024-25, both
(%, qoq) Actual figures GEO Dec '23 sizeable upward revisions. Growth has also been surprisingly strong
1.2 in Russia with robust domestic demand fuelling inflationary
1.0 pressures. We have also raised forecasts for Brazil and Turkey, but
disappointing data has led us to lower Poland and Mexico forecasts.
0.8
0.6
0.4
Unprecedented US Pro-Cyclical Fiscal Easing
0.2 An unprecedented pro-cyclical widening in the fiscal deficit in 2023
boosted US domestic demand. Fitch estimates the general
0.0
government deficit (federal and state and local combined) widened
-0.2 to 8.8% in 2023 (calendar year) from 3.7% of GDP in 2022. This was
-0.4 not just about higher interest payments, some of which would have
US
UK

Brazil

France

Spain

China
Poland

Mexico

Turkiye
Germany
Eurozone

Korea
South Africa

Japan
Italy
Australia
Canada
Switzerland

been paid to foreign holders of US debt. The primary deficit (i.e.

excluding net interest payments) widened to an estimated 6.0% of
GDP in 2023 from 1.3% in 2022.

Source: Fitch Ratings, national statistical offices, Haver Analytics The 5pp-of-GDP deterioration in the deficit in one year was eye-
catching in its own right. This has occurred only on two occasions
since the 1960s – 2009 and 2020. But it was even more dramatic
given that growth increased in 2023 – to a rate materially above

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 Sovereigns
Economics
Global

US Fiscal Balance and the Output Gap estimates of potential – while the unemployment rate remained
General government balance (LHS) (% potential
close to historical lows.
(% GDP) Output gap GDP)
A buoyant economy typically generates more fiscal revenues and
2 8
reduces pressure on government spending, for example on
0 6 unemployment benefits and social welfare outlays. For this reason,
-2 4
fiscal policy analysis adjusts headline government deficits for the
influence of the economic cycle to gauge the structural deficit.
-4 2 While precise estimates of the structural deficit are uncertain, it is
-6 0
reasonable to think there was even larger widening in the
underlying deficit in 2023, given the improvement in the economy.
-8 -2
This is captured in the chart plotting the fiscal balance since the
-10 -4 early 1960s against the output gap (using Congressional Budget
-12 -6 Office (CBO) estimates of the latter until 2018 and Fitch estimates
thereafter). Virtually all the previous periods of sharp widening in
-14 -8
the deficit have been accompanied by economic downturns, as
1963 1973 1983 1993 2003 2013 2023
captured in the output gap turning negative as GDP falls below
Source: Fitch Ratings, CBO, IMF potential. The one exception is the late 1960s when there was a
sharp fiscal deterioration – despite a strong economy – related to a
rise in Vietnam War defence spending. But even by those standards,
US Nominal Personal Sector Disposable Income the jump in the deficit in 2023 – coinciding with the output gap
Compensation Interest & dividends becoming more positive – looks dramatic.
Net transfers Taxes
(%, yoy, pp) Other Disposable income (%, yoy) Fiscal largesse clearly supported domestic demand in 2023.
16
Government consumption and investment in the national accounts
14
– which only includes spending on goods and services – grew by 4%
12
in 2023 in real terms. This was the fastest growth rate for more than
10 20 years and a sharp turnaround after the decline in 2022. It
8 directly added 0.7pp to annual GDP growth, a quarter of the total.
6 The impact was also evident in payrolls data, where state and local
4 government employment grew faster than private sector
2 employment.
0
Moreover, a fall in household sector tax payments added 2pp to
-2
disposable income growth in 2023. Household income was the main
-4
driver of consumer spending growth in 2023. The savings ratio rose
-6
slightly in annual average terms last year, although it remained well
-8
below pre-Covid-19 pandemic norms.
1960 1970 1980 1990 2000 2010 2020
Source: Fitch Ratings, BEA
Germany’s Economic Malaise
Real GDP Level in US, UK, Eurozone and Germany Germany’s economy has been in the doldrums. GDP fell by 0.3% in
US UK 2023 leaving the economy at the end of the year no larger than it
(Index, 4Q19=100) Eurozone Germany was pre-pandemic, the weakest post-Covid-19 growth
110
performance amongst the Fitch 20 countries. This malaise has given
105
voice to commentary on Germany’s ‘broken business model’.
Demographics and relatively weak investment are structural
100
constraints on growth. And the large imbalance between national
95 saving and investment leaves GDP growth highly reliant on external
demand, though this served Germany well in 2010-2019.
90
But it is also important to recognise that Germany has suffered from
85 a succession of major shocks - the gas crisis, the fall in world trade
and ECB monetary tightening – which are unlikely to be repeated.
80 There are signs that world trade is bottoming out, gas prices have
fallen sharply and the ECB is expected to cut rates soon.
75
4Q19 2Q20 4Q20 2Q21 4Q21 2Q22 4Q22 2Q23 4Q23 Notably, Germany experienced a sizeable property boom in 2015-
Source: Fitch Ratings 2021 which has unwound rapidly as the ECB has raised rates.
Pressures in the real estate sector should ease as the ECB starts to
loosen policy, while falling headline inflation and gas prices should
boost household real income and consumption, particularly in the

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 Sovereigns
Economics
Global

Eurozone Real Wage Growth context of still-robust labour market conditions. The recovery will
not be rapid – and we have cut our forecasts for German growth in
(%, yoy) 2024 and 2025 – but we anticipate a period of catch-up, above-
3
trend growth in Germany in the medium term.
2

1
Deflationary Pressures Are Rising in China
China’s economy is showing increasing signs of deflationary
0 pressures as the property collapse continues. Many indicators of
-1 the economy-wide price level are falling. The GDP deflator – the
price of domestic value-added – fell by 1% year on year (yoy) in
-2 4Q23. It has been falling in yoy terms for four out of the last five
-3 quarters, the longest episode of deflation since the Asia crisis.

-4 Estimates of the investment deflator show a 3% fall in 2023, export

prices fell by 9% yoy in 4Q23 and producer prices were 2.7% lower
2000
2001
2002
2003
2004
2005
2006
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2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
yoy in February. The CPI had its largest drop since 2009 – falling by
Note: Including 2024-2025 ECB forecasts
0.8% yoy in January – though it recovered to +0.7% in February.
Source: Fitch Ratings, ECB, Eurostat, Haver Analytics Asset prices are also sliding. House prices have fallen 7.5% from
their peak and the decline has recently intensified, with prices 4.6%
lower yoy in January. Equity prices fell sharply in 2023.
China - GDP Deflator and CPI Inflation Headline CPI inflation turned negative in late 2023 mainly
(%, yoy) GDP deflator CPIa
CPIa reflecting volatile food inflation, related to swings in pork prices.
10 Both headline and core inflation rebounded in February but this
appears to largely be driven by temporary effects from the Lunar
8 New Year. Based on the assumption that food prices remain broadly
flat for the rest of 2024 and core remains close to rates of late 2023,
6
our end-2024 CPI forecast is 0.7% yoy, far below the 3% objective.
4
In short, deflationary pressures look to be quite broad-based. This
2 is despite policy easing since August 2023, with cuts in interest
rates and banks’ reserve requirement ratios and macro-prudential
0 easing measures aimed at the property market. The limited impact
of these measures partly reflects their modest scale, but also
-2
powerful knock-on effects from the ongoing rout in property, a
-4
sector that accounts for 20%-25% of GDP once upstream and
1997 2002 2007 2012 2017 2022 downstream linkages are accounted for.
a1Q24 CPI inflation estimate based on Fitch forecast for March 2024 Prospective home buyers are not responding to cuts in funding
Source: Fitch Ratings, NBS, Haver Analytics
costs partly because of a lack of confidence in the capacity of
financially distressed private developers to complete and deliver on
Core Services CPI Inflation pre-sales. This is evidenced by the large gap between buoyant
US core services growth in sales of completed new homes and the slump in sales of
(%, yoy)
Eurozone core services new homes under construction. Credit growth – traditionally a
UK core services good indicator of the impact of policy easing – slowed significantly
14
in January to 9.1% yoy from 9.5% on Fitch’s adjusted measure.
12
The limited efficacy of monetary and credit easing has seen the
10 authorities progressively step up fiscal easing over the last 9
months. Fitch’s estimates suggest that budgetary measures
8
announced by the recent National People’s Congress will result in a
6 rise in the consolidated fiscal deficit to over 7% of GDP in 2024 from
5.8% in 2023. This is the main reason we have not lowered our
4 growth forecasts by a greater amount in response to the
2
deteriorating property outlook. Nevertheless, until the property
sector stabilises, downside risks will remain, as explored in our
0 recent stress scenario.
1985 1990 1995 2000 2005 2010 2015 2020

Source: Fitch Ratings, BLS, Eurostat, ONS, Haver Analytics Inflation Persisting in US and Europe
Disinflation progress in 2H23 sparked market exuberance about
the prospects for rapid Fed and ECB monetary easing. But inflation
data in recent months have provided a sobering reminder of the

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 Sovereigns
Economics
Global

Nominal Wage Growth Measures tendency for inflation to perpetuate itself. US core inflation
momentum (three-month on three-month annualised) has climbed,
US (Atlanta Fed)
UK reflecting a rise in services inflation and we have revised up our end-
(%, yoy, 3mma) Eurozone (Indeed estimates) 2024 CPI forecast by 0.3pp to 2.9%.
10
Better progress has been made in the eurozone, where core
8 inflation has fallen to 3.1% yoy, but, like the US, services inflation
remains far above rates prevailing when overall inflation was close
6 to target. The downtrend in nominal wage growth has stalled in
both economies in recent months amid continued tight labour
4 markets. Moreover, the jump in shipping freight costs following
disruptions to Red Sea trade routes adds potential for upward
2
pressure on core goods inflation.
0
Fed Holding Out; ECB to Blink First on Rates
-2 The Fed, ECB and Bank of England (BOE) all continue to signal that
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 interest rates have likely peaked and will be cut later this year. At
Source: Fitch Ratings, Atlanta Fed, ONS, Indeed Hiring Lab, Haver Analytics the same time, they have been pushing back against earlier market
expectations that policy easing would start imminently and proceed
rapidly. Their messaging has emphasised the risk of moving to a
Shipping Cost Indices less-restrictive stance too early and, in the process, jeopardising
(Index, Dec Harper Petersen Freightos - Global progress in reducing inflation sustainably to targets.
'23=100) Drewry
900
A common refrain is the need to ‘gain more confidence’ that recent
disinflation progress is lasting. This does not necessarily mean that
800 (Index, 4Q19=100) inflation has to fall much further – a succession of further prints
700 similar to recent data outturns would probably be sufficient to
600 unlock cuts. But continued high readings for services and wage
inflation are adding to caution and the desire to wait for more data
500
to confirm disinflation progress.
400
Against this backdrop, we now believe the Fed will wait until its 30-
300 31 July meeting before cutting rates. This is later than our previous
200 expectation of June. We have also pushed back our expectation of
100 the first ECB rate cut to June from April. Recent ECB commentary
emphasised the bank’s concern about the latest wage and unit
0
labour cost growth data and flagged that “significantly more
2016 2017 2018 2019 2020 2021 2022 2023
information” will be available by June.
Source: Fitch Ratings, HP, Drewry, Freightos, Haver Analytics
The BOE faces an even bigger challenge with still-high CPI services
and wage inflation data, and we do not expect UK rate cuts until
Policy Interest Rates Outlook - US, UK & Eurozone August. But for all three central banks we continue to expect a total
of three interest rate cuts – totalling 75bp – by year-end.
(%) Fed BoE ECB
6 Just as the Fed, ECB and BOE prepare to start cutting rates, we now
believe conditions are ripe for the Bank of Japan to exit its negative
5 interest rate regime. Reflationary forces in Japan are becoming
more entrenched as wage inflation picks up.
4
US ‘No Landing’ Scenario Creeps into View
3
Recent surprising US growth resilience in the presence of falling
inflation is often characterised as a ‘soft landing’. Supply-side
2
improvements – namely rising immigration and easing supply-chain
bottlenecks – did help improve the US output inflation trade-off in
1
2023. But the sharp deterioration in domestic imbalances – as the
fiscal deficit widened rapidly – warrants caution here.
0
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Moreover, the risk of a ‘no landing’ scenario – in which sequential
Source: Fitch Ratings, Fed, ECB, BoE, Haver Analytics
GDP growth remains above trend and the labour market sees
renewed tightening in 2024 – has increased. Under such a scenario
there could be renewed upward pressure on wage and services
inflation and this could prevent the Fed from cutting rates in 2024.

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United States US - Credit Impulse and Real GDP Growth

The US economy has had a lot more growth momentum than we (%, yoy, % Real GDP (%, yoy) Credit impulse (% GDP)
expected in the December GEO. GDP expanded by 0.8% (3.2% GDP)

annualised) in 4Q23 compared to our previous forecast of 0.3%. 15

Annual average growth in 2023 was 2.5% and growth through the
10
year to 4Q23 was 3.1% yoy, both well in excess of our estimate of
potential growth of 1.7%. Monthly indicators including payrolls
5
point to another solid expansion in 1Q24.
We expect growth to slow to a significantly below-trend rate later 0
this year, reflecting a fading fiscal impulse, falling household income
-5
growth, a weakening contribution from net trade and lagged effects
from last year’s monetary tightening, as real interest rates rise.
-10
Pro-cyclical fiscal easing in 2023 was dramatic, as the general
government fiscal deficit (federal plus state and local) widened by -15
1974 1982 1990 1998 2006 2014 2022
5pp of GDP in a year of robust growth. The impact was felt directly
in the fastest growth in real government spending on goods and Source: Fitch Ratings, BEA, Fed, Haver Analytics
services for more than 20 years and in falling household tax
payments. Fitch expects the deficit to narrow slightly this year.
US - Core CPI and Wage Momentum
Tax cuts in 2023 boosted household sector disposable income (%, 3m/3m, Average hourly wages Core CPI
growth, but from now on income will be driven by wage annualised)
compensation. Full-time equivalent employment has already 8
slowed – partly reflecting a deceleration in average weekly hours –
and we assume that wage growth will slow as the year progresses. 7
Savings buffers could dampen the impact on consumption but these
are smaller now, and incentives to save will increase as real interest 6
rates rise. We also expect the household debt service ratio to rise
further. 5

The sharp slowdown in bank credit – which has been focused on 4

commercial and industrial lending – is expected to weigh on the
outlook for business investment. Last year’s fall in imports also 3
looks like a one-off related to de-stocking. Nevertheless, we have
raised our annual 2024 GDP growth forecast substantially to 2.1% 2
Jan 22 Jul 22 Jan 23 Jul 23 Jan 24
from 1.2% in the December GEO.
Source: Fitch Ratings, BLS, Haver Analytics
Sticky services inflation, still-high nominal wage growth and upside
risk to core goods inflation from the jump in global shipping costs
are likely to keep the Fed quite cautious before embarking upon
rate cuts. Recent data have shown an uptick in core and wage
inflation momentum and we have raised our end-2024 CPI forecast
to 2.9% from 2.6%. We still expect the Fed to cut rates by a total of
75bp this year but we have pushed back the timing of the first cut to
July – from our previous expectation of June – with further cuts
anticipated in September and December.

United States - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 2.1 1.9 2.5 2.1 1.5
Consumer spending 2.5 2.5 2.2 1.9 1.3
Fixed investment 1.9 1.3 0.6 0.5 2.2
Net trade (contribution pp) -0.3 -0.5 0.6 0.1 -0.2
CPI inflation (end-year) 4.0 6.5 3.4 2.9 2.4
Unemployment rate 4.9 3.6 3.6 4.1 4.8
Policy interest rate (end-year) 2.05 4.50 5.50 4.75 3.50
Exchange rate, USDEUR (end-year) 0.90 0.94 0.90 0.93 0.93
Source: Fitch Ratings

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Eurozone Eurozone - Labour Costs

Hourly labour costs: wages & salaries
We have lowered our growth forecast for 2024 by 0.1pp, to 0.6%,
Indicator of negotiated wages
and trimmed our 2025 growth forecast similarly. The cuts largely (%, yoy) Unit labour costs
reflect downward revisions to our Germany forecast, which delay 10
our forecast recovery into 2Q24, and which outweigh upward
8
revisions to Spain and Italy.
6
The eurozone economy is characterised by weak but recovering
4
external demand, a gradual improvement in household demand
based on improving real incomes, investment and credit that are 2
still subdued by monetary tightening but are gradually improving 0
into 2025. Euro area GDP was unchanged in 4Q23, even though
domestic demand grew. The composite output PMI for the -2
eurozone improved in January and February, with the services -4
component only just above 50 in February. This suggests that the
-6
eurozone will return to meagre growth in 1Q24, before the 2013 2015 2017 2019 2021 2023
economy strengthens in the remainder of the year.
Source: Fitch Ratings, ECB, Haver Analytics
We maintain an unchanged ECB policy rate forecast of 75bp of cuts
by the end of this year, but now expect the first cut at the June
Eurozone - Inflation Measures
meeting. The ECB cut its 2024 and 2025 forecasts for inflation in
Headline CPI
March, although this was partly driven by a more benign view on Core
food and energy prices. (%, yoy) Services
12
The ECB governing council has said it would like to see more data
confirming that wage growth is moderating further – easing upward 10
pressures on domestic prices – before embarking on rate cuts. 8
Growth in negotiated wages (which represent wages set by all
collective bargaining agreements still in force) slowed in 4Q23; 6
however, they are still growing much faster than the 3% that the
4
council has discussed as the maximum sustainable level compatible
with its inflation target. Productivity weakness is adding to 2
concerns and the ECB is worried about upside risks to inflation if
profit margins do not shrink to absorb rising unit labour costs. 0

Inflation fell to 2.6% in February from 2.9% in December, according -2

2010 2012 2014 2016 2018 2020 2022 2024
to the flash estimate. Services price inflation decelerated by just
0.1pp to 3.9%. Labour markets remain strong, with the harmonised Source: Fitch Ratings, Eurostat, Haver Analytics
monthly unemployment rate in January matching its lows of 6.4%.
Employment has been growing faster than the historical
relationship with real output would suggest, driven by higher
employment in services. Even with a forecast slowdown in
employment growth, because of subdued population growth we
continue to expect a steady unemployment rate. Companies still
seem to be hoarding labour although vacancies are falling.

Eurozone - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 1.1 3.4 0.4 0.6 1.6
Consumer spending 0.5 4.2 0.5 0.9 1.7
Fixed investment 1.6 2.5 1.1 1.7 2.4
Net trade (contribution pp) 0.1 0.0 0.2 -0.3 0.1
CPI inflation (end-year) 3.6 9.2 2.9 2.3 2.0
Unemployment rate 7.3 6.7 6.5 6.5 6.4
Policy interest rate (end-year) 0.93 2.50 4.50 3.75 3.00
Exchange rate, EURUSD (end-year) 1.12 1.07 1.10 1.08 1.08
Source: Fitch Ratings

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 Sovereigns
Economics
Global

China China - Consolidated Fiscal Balance (Fitch Definition)

(% GDP)
Real GDP growth accelerated in 4Q23, to 5.2% yoy, from 4.9% in
2
3Q23. For the whole of 2023, real GDP growth was also 5.2%,
marginally lower than our December 2023 estimate. Growth was
0
driven by the normalisation of household spending patterns
following Covid-19-related restrictions, while the ongoing
-2
weakness in the real estate sector has constrained investment
dynamics. The GDP deflator declined over 2023, highlighting the -4
risk of deflationary pressures becoming entrenched. Recent
business survey data point to a moderate pace of growth in activity. -6
But consumer confidence remains very low, at levels close to early
2022. And credit growth on the Fitch-adjusted measure of credit to -8
the real economy slowed to 9.1% yoy in January from 9.5%.
We expect persistent weakness in the real estate sector to -10

2004

2010

2016

2022
2000

2002

2006

2008

2012

2014

2018

2020

2024F
constrain economic growth in 1H24. Property sales in December
were 23% lower than a year earlier. House prices have so far
adjusted by less than transactions, but recorded a sharper annual Source: Fitch Ratings, CEIC
fall in prices in January (4.6% from 3% in December). Fitch now
expects property sales to decline by 5%-10% this year. The China - Housing Market
authorities have implemented further support measures. In Price Index of Existing Residential Buildings (70 cities)
January, the PBOC reduced banks’ reserve requirement ratio by (Volume, %, Starts (LHS)
yoy, 3mma) New housing sales (LHS) (%, yoy)
50bp, and then in February it cut the five-year loan prime rate (a 75 15
benchmark interest rate for mortgage loans) by 25bp.
60 12
The National People’s Congress in early March laid out growth 45 9
targets and policy priorities. The GDP growth target for this year
30 6
remained at “around 5.0%”, while further stimulus will come mainly
via the issuance of CNY1 trillion (about 0.8% of GDP) of long-term 15 3
central government bonds, likely to be focused on infrastructure 0 0
projects. We assess that the announced measures are consistent -15 -3
with the consolidated budget deficit widening to just over 7.0% of
-30 -6
GDP this year from 5.8% in 2023, implying a degree of fiscal policy
loosening. -45 -9
-60 -12
Policy support (we expect the PBOC to trim its main policy rate in 2019 2020 2021 2022 2023 2024
the coming months) will contribute to a recovery in economic
growth in 2H24, but we think that real GDP growth this year will be Source: Fitch Ratings, NBS, Haver Analytics

4.5% (a marginal downward revision from December),

undershooting official targets. GDP growth next year will remain at
4.5%, owing to an improved investment outlook. An important risk
to this projection is a continued deterioration in the property
market and related sectors.
Headline inflation turned positive in February, but this reflects to
some extent the timing of the Lunar New Year holidays this year
compared to last. We expect inflation will be 0.7% by year-end,
before rising gradually to 1.3% by end-2025.

China - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 5.0 3.0 5.2 4.5 4.5
Consumer spending 5.0 0.3 8.6 5.0 4.5
Fixed investment 4.0 3.2 5.2 3.7 4.9
Net trade (contribution pp) 0.8 0.8 -0.2 0.2 0.0
CPI inflation (end-year) 1.7 1.8 -0.3 0.7 1.3
Policy interest rate (end-year) 2.94 2.75 2.50 2.25 2.25
Exchange rate, USDCNY (end-year) 6.82 6.99 7.14 7.20 7.30
Source: Fitch Ratings

Special Report │ 13 March 2024 fitchratings.com 11

 Sovereigns
Economics
Global

Japan Japan - Shunto Union Wage Requests & Agreements

Economic activity has been weak in recent quarters, but Japan (%) Weighted average increase Union request rate
appears to be experiencing the virtuous circle between wages and 9
prices that the Bank of Japan (BOJ) has long said it needs to see. 8
Fitch therefore expects the BOJ to start normalising its policy
7
stance and to increase rates gradually.
6
The 0.1% increase in GDP in 4Q23 only partly reversed a 0.8%
decline in the previous quarter. Net trade made a positive 5
contribution to growth in 4Q23, as did investment, but consumer 4
spending contracted for the third consecutive quarter. 3
We expect the Japanese economy to expand by 0.6% in 2024. The 2
big fall in industrial output in January and the subdued survey data
1
for January and February suggest that the economy started the
year on the back foot. However, companies are still planning capex 0
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023
and strong corporate profits suggest that they will have the means
to do so. Source: Fitch Ratings, RENGO

Consumers are likely to soon start to feel the benefits of real wage
increases as the disinflation trend continues and nominal wage Japan - Non-Financial Companies' Operating Profits
growth accelerates. Early indications suggest that this year’s Large firms Medium firms Small firms
(JPY trn, SA)
Shunto wage negotiations will result in another significant uplift in 14
pay, cementing the upward trend in earnings growth.
12
Headline inflation subsided to 2.1% in January from its multi-
decade high of 4.4% a year earlier. But services inflation, which is 10
more reflective of domestic price pressures, has been stickier at a
little over 2% for around six months. Companies are also more 8
confident about passing on increases in labour input costs to their
6
customers and both workers’ and employers’ inflation expectations
remain high. 4
As a result, we expect the BOJ to raise the main policy rate to zero,
2
from –0.1%, in April. This is consistent with the improvement in the
wage and inflation data and recent signals from BOJ policymakers. 0
Having patiently cultivated second-round effects, we doubt the 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023
BOJ will embark on an aggressive tightening cycle that risks pushing
Source: Fitch Ratings, Ministry of Finance, Haver Analytics
Japan back into deflation. Instead, we expect a very gradual
increase in interest rates, to just 0.25% by end-2025.

Japan - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 0.2 0.9 1.9 0.6 0.7
Consumer spending -0.3 2.1 0.6 0.1 0.7
Fixed investment -0.5 -1.4 2.0 1.2 0.9
Net trade (contribution pp) 0.0 -0.5 0.9 0.6 0.0
CPI inflation (end-year) 1.2 4.0 2.6 2.3 2.0
Unemployment rate 2.6 2.6 2.6 2.5 2.5
Policy interest rate (end-year) -0.10 -0.10 -0.10 0.10 0.25
Exchange rate, USDJPY (end-year) 119.5 132.7 141.9 145.0 135.0
Source: Fitch Ratings

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 Sovereigns
Economics
Global

United Kingdom UK - Contributions to Services CPI Inflation

Housing Travel & transport
The UK economy was unable to escape a recession in 2023, with Communications Recreation & personal
GDP falling by a cumulative 0.5% in 2H23. Downward revisions to (%, yoy, pp) Misc. Services (% yoy)
previous quarters meant the economy eked out a 0.1% expansion in 8
2023. We expect yet another year of near-stagnation for the UK 7
economy. The 0.3% qoq decline in GDP in 4Q23 was bigger than we
6
had expected, providing a weak platform for growth in 2024. The
details also pointed to broad-based weakness. Although investment 5
increased, this was mainly due to a rise in government investment,
4
while residential investment contracted for the fifth consecutive
quarter. Exports slumped and consumer spending fell further, 3
illustrating the toll that higher rates are taking on households. 2

We do not expect much relief for households in the near term in 1

spite of the announced reduction in national insurance
0
contributions. Indebted households face further rises in interest 2019 2020 2021 2022 2023 2024
payments on their debt. The large stock of excess savings suggests
that households should be able to cope, but we doubt that these Source: Fitch Ratings, ONS, Haver Analytics
savings will be used to fund discretionary spending. Consumer
confidence has improved in the past year or so, and should continue UK - Labour Force Participation Rate, 16+ Population
to do so as inflation and, in turn, interest rates come down. That
(%)
should help drive stronger growth in 2H24 and 2025.
64.5
The labour market remains tight. The participation rate is a long
way below its end-2019 level, at just 62.8% in 4Q23. Policy
measures may encourage some increase, but we are sceptical that 64.0
such measures will be transformative in the next couple of years.
Labour hoarding is likely to keep the unemployment rate low, as
companies adjust to stagnant activity more through hours worked 63.5
rather than headcount.
Headline inflation is likely to fall temporarily below 2% in the middle 63.0
of this year as the 12% cut to the Ofgem energy price cap in April
takes effect. But core inflation is set to remain higher – the latest
PMIs indicated that input price inflation in the UK private sector is 62.5
rising at its fastest pace since last summer, with services providers 2010 2014 2018 2022
passing on increases to customers amid a perceived resilience in
demand. Source: Fitch Ratings, ONS, Haver Analytics

The BOE has indicated that the peak in interest rates has been
reached. But we think persistent services inflation and elevated
wage growth will mean it is cautious about starting to cut rates too
soon. We think that it will wait until August and expect 75bp of cuts
this year, and a further 100bp in 2025.

United Kingdom - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 0.9 4.3 0.1 0.2 1.7
Consumer spending 0.1 5.0 0.4 0.1 1.5
Fixed investment 2.0 8.0 2.9 0.2 1.8
Net trade (contribution pp) -0.1 -1.7 0.1 -0.5 0.1
CPI inflation (end-year) 4.3 10.5 3.9 2.5 2.5
Unemployment rate 4.2 3.9 4.0 4.3 4.0
Policy interest rate (end-year) 1.47 3.50 5.25 4.50 3.50
Exchange rate, GBPUSD (end-year) 1.28 1.21 1.27 1.25 1.20
Source: Fitch Ratings

Special Report │ 13 March 2024 fitchratings.com 13

 Sovereigns
Economics
Global

Germany Germany - Quarterly GDP & Employment Growth

We have made another downward revision of 0.3pp to our 2024 (%, yoy) GDP Employment
growth forecast, essentially postponing the start of the recovery by 8
acknowledging a likely renewed contraction in 1Q24. We now 6
expect minimal growth of 0.1% in 2024 as a whole. PMIs for
4
Germany have been weak, even compared with other eurozone
countries. Manufacturing output was still contracting in February; 2
the detailed output data to January show that growth in the autos
0
sector is no longer compensating for declines in other areas
including energy-intensive industries. The construction PMI fell to -2
a new low in this cycle. Although the Bundesbank’s weekly activity -4
index points to some recovery, most surveys point to a further
-6
contraction in 1Q24.
-8
Germany’s economy is more exposed than most to global trade, 2005 2008 2011 2014 2017 2020 2023
where volumes dipped in 2023 and are expected to recover mildly
in 2024; exports grew strongly in January though it remains to be Note: shaded area refers to 2Q20-2Q21
Source: Fitch Ratings, Federal Statistical Office, Haver Analytics
seen whether that will be sustained.
Reduced carryover from 2024 mechanically reduces growth in
Germany - Contribution to Manufacturing Growth
2025 and we have cut our 2025 growth accordingly by 0.2pp
compared with the December GEO, to 1.4%. That is a rapid pace of Transport equipment Basic metals + non-metallic
Chemical & pharmaceutical Machinery & equipment nec
growth compared with the recent past, although in level terms, this Other and stat. discrepancy Manufacturing (%, yoy, 3mma)
would mean domestic demand growing by less than 2% between (%, yoy, 3mma, pp)
2019-2025. We estimate a large negative output gap and see 7
reasons to believe in a cyclical upturn in the medium term despite 6
structural constraints, as a recent series of shocks are overcome. 5
4
GDP contracted by 0.3% in 4Q23 as projected in the December 3
2
GEO. The composition differed somewhat from our expectations,
1
with weaker investment and net trade, and stronger consumption. 0
We expect private consumption to help lead the economy out of its -1
slump as real household incomes continue to recover. Recent strike -2
activity is a signal of workers’ bargaining power. A stagnant -3
-4
economy nevertheless continues to create jobs and the labour -5
market remains firm. Job creation picked up pace in January Jan 22 May 22 Sep 22 Jan 23 May 23 Sep 23 Jan 24
compared with the two previous months, based on seasonally
adjusted data. A broader unemployment metric that includes some Source: Fitch Ratings, Federal Statistical Office, Haver Analytics
involuntary part-time workers has risen, however.
Inflation in December spiked to 3.8% on base effects, but came
down to 2.7% by February. The least encouraging aspect of the
report was the very slight decline services price inflation, to 3.7%.

Germany - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 0.4 1.8 -0.3 0.1 1.4
Consumer spending 0.1 3.9 -0.7 0.8 1.2
Fixed investment -0.3 0.1 -0.7 -1.4 1.7
Net trade (contribution pp) -0.3 -1.3 0.5 -0.2 0.3
CPI inflation (end-year) 3.9 9.6 3.8 2.4 2.0
Unemployment rate 3.3 3.1 3.0 3.1 3.0
Policy interest rate (end-year) 0.93 2.50 4.50 3.75 3.00
Exchange rate, EURUSD (end-year) 1.12 1.07 1.10 1.08 1.08
Source: Fitch Ratings

Special Report │ 13 March 2024 fitchratings.com 14

 Sovereigns
Economics
Global

France France - Headline Inflation

We have cut the 2024 growth forecast by 0.2pp since December to France: Harmonised Consumer Price Index
(%, yoy) Eurozone: HICP
0.8%, as incoming economic and survey data reinforce the picture 12
of near-term weakness. Real GDP was flat in 3Q23 and grew by just
0.1% in 4Q23 – there was almost no growth in 2H23. January 10
industrial output fell by 1.6% month on month, getting 2024 off to a
8
poor start. The composite output PMI has been below 50 since June
2023, and was particularly weak in 4Q23. It has improved so far in 6
2024 but is still contracting. A recently announced EUR10 billion
tightening in fiscal policy in 2024 will also reduce demand, as will 4
weaker growth in Germany, France’s leading export market.
2
Private investment has been fairly firm in this cycle, with real
0
private investment up by 6% since 2019, far more than 1% in the
eurozone. However, investment intentions are fairly weak and -2
construction in particular has been hard hit by ECB monetary 2010 2012 2014 2016 2018 2020 2022 2024
tightening.
Source: Fitch Ratings, INSEE, Eurostat, Haver Analytics
The Banque de France survey of companies in March highlighted
ongoing weakness in industry and expected growth of 0.2% in
France - Unemployment Rate
1Q24. We now expect broad stagnation in early 2024 to give way
to a cautious recovery, following similar trends to the rest of the France
(% labour force) Eurozone
eurozone, as rising real incomes lead to a recovery in consumption. 13
However, since France experienced a smaller rise in energy prices
and overall inflation, the impact of disinflation on real household 12
income will be less positive. The household savings rate remains
11
well above its pre-pandemic trend, perhaps more so in France’s case
given the uncertainties generated by recent labour and pension 10
reforms.
9
Dynamics in the labour market also differ somewhat from the other
big eurozone economies. The unemployment rate has already risen 8
0.4pp from its lows to 7.5% and we expect the rate to rise slightly in
2024. The recent labour and pension reform has increased 7
participation, while formerly strong job growth has faded. INSEE 6
data on salaried employment showed this was essentially flat in 2010 2012 2014 2016 2018 2020 2022 2024
4Q23, with job gains of 11,200 the slowest for any quarter since the
start of the post-pandemic recovery; private-sector employment Source: Fitch Ratings, Eurostat, Haver Analytics

fell on a seasonally adjusted basis for the first time.

France - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 0.8 2.5 0.7 0.8 1.5
Consumer spending 0.6 2.3 0.6 0.9 1.5
Fixed investment 2.1 2.2 0.8 0.7 1.9
Net trade (contribution pp) -0.3 -0.6 0.5 0.4 0.0
CPI inflation (end-year) 3.1 6.7 4.1 2.6 2.0
Unemployment rate 7.8 7.3 7.3 7.6 7.5
Policy interest rate (end-year) 0.93 2.50 4.50 3.75 3.00
Exchange rate, EURUSD (end-year) 1.12 1.07 1.10 1.08 1.08
Source: Fitch Ratings

Special Report │ 13 March 2024 fitchratings.com 15

 Sovereigns
Economics
Global

Italy Italy - Labour Market Indicators

We have raised our growth forecast for Italy. Growth in 4Q23 was Unemployment rate (LHS) (% population
(% labour force) Employment rate aged 15-64)
stronger than we expected at +0.2%, taking full-year growth to
14 65
0.9% and increasing the carryover to 2024. Investment grew
strongly as homeowners rushed to take advantage of Superbonus
tax incentives for home renovation before a step-down in the rate 12 62
(110% deductibility expired at end-2023; in 2024 it will be 70%,
then decline to 65% in 2025. Spending eligible for the tax break 10 59
continued strongly into January according to a regular report by
government agency ENEA. The composite output PMI rose above 8 56
50 in January for the first time in several months and rose further in
February, in an encouraging sign for 1Q23.
6 53
Household investment is supporting overall investment despite a
sharp unwinding in lending to corporates, which is contracting
4 50
faster than in the three other main eurozone economies. We had 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
long believed that a decline in household investment would
Source: Fitch Ratings, ISTAT, Haver Analytics
outweigh the boost from government investment under the
National Recovery and Resilience Plan, but we now think overall
investment will grow in 2024. Italy - Construction Output
(Index, Dec France Spain
Jobs growth was firm in 4Q23, with unemployment falling to 7.2% '19=100) Italy Germany
in December and January, although job creation has since slowed. 160
We expect the unemployment rate to continue to fall. This is
accompanied by moderate wage growth. A jump in contractual 140
earnings growth to 7.9% yoy in 4Q23 was attributable to the way
statistics body Istat accounted for a decree that affected the pre- 120

payment of holiday allowances to public-sector employees. This 100

caused a 22% month-on-month jump in recorded contractual wages
in the public sector in December, but this will be unwound. 80

Core inflation is lower in Italy than in the rest of the eurozone (in 60
February it was 2.6% versus 3.1%). Overall inflation was unchanged
at 0.9% in February, and below 1% for a fourth month. Energy prices 40
fell 17% as the previous steep increase in household energy prices 20
was unwound. We expect inflation to increase from these low levels 2019 2020 2021 2022 2023
in 2024 as the negative contribution from energy fades, while core
inflation declines. Source: Fitch Ratings, Eurostat, Haver Analytics

Italy - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 0.9 4.0 0.9 0.7 1.3
Consumer spending 0.3 4.9 1.2 1.0 1.6
Fixed investment 5.4 8.6 4.7 0.9 1.1
Net trade (contribution pp) -0.1 -0.6 0.2 0.4 0.0
CPI inflation (end-year) 3.4 12.3 0.5 2.3 2.0
Unemployment rate 8.9 8.1 7.6 7.2 6.9
Policy interest rate (end-year) 0.93 2.50 4.50 3.75 3.00
Exchange rate, EURUSD (end-year) 1.12 1.07 1.10 1.08 1.08
Source: Fitch Ratings

Special Report │ 13 March 2024 fitchratings.com 16

 Sovereigns
Economics
Global

Spain Spain - Household Nominal Disposable Income

We have raised our 2024 growth forecast for Spain by 0.2pp to (%, yoy)
1.8%. Incoming data has been strong. Growth was better than 15
expected in 4Q23, reaching 0.6% qoq, including an unusually strong
contributions from public consumption and inventories. 10
Consumption, net exports and public consumption, all contributed
roughly equally during the year with only investment falling slightly. 5
Overall growth in 2023 was 2.5% compared with our estimate of
2.4% in the December GEO. Investment ended 2023 with 0
contraction, lowering the carryover into this year. However,
investment will still be a growth driver, reflecting Next Generation -5
EU (NGEU) spending.
-10
We expect growth to slow in 1Q24 but to remain firm. PMIs are the
strongest among the big four eurozone economies, with the -15
composite output PMI climbing to 53.9 in February, the highest 2012 2014 2016 2018 2020 2022
reading since 2Q23. Both manufacturing and services gauges are
Source: Fitch Ratings, INE, Haver Analytics
positive.
Spain’s economy is proving to be more resilient to the impact of
Spain - Change in Total Employment vs Eurozone Peers
monetary tightening than feared. Volumes of new bank loans to
households and corporates have held up comparatively well. (000s, SA) Spain Germany France Italy
Housing transaction volumes have fallen in response to higher 800
borrowing costs, but by less than in some other markets, and
construction volumes grew consistently in 2023. House prices are 600
still rising, despite the rapid transmission of the interest-rate shock
via widespread variable-rate mortgages, which pushed up not only
400
new financing costs but also payments on existing mortgages. The
legacy of the 2000s boom and bust in property continues to be felt,
with prices in some cities only regaining highs of 2007 in 2023. 200

Household disposable income grown particularly fast, boosted by

0
wage income as the economy continues to create jobs faster than
the other large eurozone economies. Growth in the labour cost
index for Spain overtook that in the euro area in mid-2023. The -200
government raised the minimum wage by 8% in 2023 and by a 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23
further 5% in February 2024. The government also boosted
Source: Fitch Ratings, INE, Federal Statistical Office, ISTAT, Haver Analytics
contributory pensions by 8.5% in 2023. Consumer spending has not
kept pace with income, so there is scope for it to catch up.
Fiscal policy has been supportive. At end-2023, the government
extended some of the tax cuts on electricity and gas that had been
due to expire at the start of 2024. Increases in tax and VAT rates will
be phased in during 2024 instead.

Spain - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 1.1 5.8 2.5 1.8 2.0
Consumer spending 0.5 4.7 1.8 1.7 1.7
Fixed investment 0.3 2.4 0.6 0.9 2.7
Net trade (contribution pp) 0.3 2.8 0.8 0.0 0.4
CPI inflation (end-year) 3.0 5.5 3.3 2.9 2.0
Unemployment rate 13.9 12.9 12.1 11.5 11.3
Policy interest rate (end-year) 0.93 2.50 4.50 3.75 3.00
Exchange rate, EURUSD (end-year) 1.12 1.07 1.10 1.08 1.08
Source: Fitch Ratings

Special Report │ 13 March 2024 fitchratings.com 17

 Sovereigns
Economics
Global

Switzerland Switzerland - Corporate Credit

Our headline growth forecast for Switzerland is unchanged. We Total bank loans to eurozone nonfinancial corporations
expect growth to accelerate in 2024, partly on the contribution of (%, yoy) Total bank loans to Swiss nonfin. corporations: credit lines
12
sporting events. Growth in4Q23 growth was 0.3% qoq, close to our
projection of 0.2%; for the whole of 2023, growth was as we had 10
expected. Services are performing well while manufacturing is 8
trailing; manufacturing output fell 0.9% yoy in 4Q23 with energy- 6
intensive sectors down more. Export performance has been solid; 4
chemical and pharmaceutical value-added has grown by 47% since 2
end-2019, but decreased in 4Q23. Surveys by the KOF economic
0
barometer suggest current conditions for manufacturers and
-2
exporters are mixed but that expectations have improved.
-4
Investment is expected to strengthen in 2024.
-6
Inflation came in lower than the SNB’s forecasts: the CPI was up by -8
just 1.5% in January and 1.2% in February compared with SNB’s 2013 2015 2017 2019 2021 2023
forecast for 1Q24 of 1.8%. There was some momentum on a month-
Source: Fitch Ratings, ECB, Swiss National Bank, Haver Analytics
on-month basis, particularly in domestically produced goods and
services inflation, which was 1.9% yoy in February. The data in
February included a rise in regulated rents that was tied to an Switzerland - Inflation Measures
increase in the reference interest rate. The SFSO core inflation rate
(excluding fresh food and energy) was 1.2% yoy in January, a HICP SFSO Core CPI (1) CPI
(%, yoy)
fraction of the rate in the eurozone. 4
Given the inflation undershoot, we have lowered our inflation
3
forecast but also believe it is likely the SNB will move to cut rates at
its meeting in late March, making it the first major developed- 2
market central bank to do so, rather than waiting until June. We
have also added a further cut by year-end, for a terminal rate of 1
1.25%. The SNB, as well as raising its benchmark interest rate from
-0.75% to 1.75% between June 2022 and June 2023 (less than the 0
ECB, which may lie behind the resilience of Swiss banks’ corporate
lending), has also intervened in the foreign-exchange market to -1
support the Swiss franc and promote disinflation that way. At the
-2
SNB’s December meeting, it changed tack and said it would “was no 2018 2019 2020 2021 2022 2023 2024
longer focusing on sales of foreign exchange.”
Currency appreciation has come at some cost to goods exporters; Source: Fitch Ratings, Swiss Federal Statistical Office, Haver Analytics

depreciation would help them. We have kept our forecast for the
franc to depreciate slightly from current levels to USDCHF0.90 at
end-2024 and end-2025.

Switzerland - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 1.5 2.7 0.8 1.2 1.7
Consumer spending 1.2 4.2 2.1 1.4 1.4
Fixed investment 0.3 1.2 -2.0 -1.0 1.4
Net trade (contribution pp) 0.6 0.3 -0.7 1.5 0.6
CPI inflation (end-year) 1.0 2.8 1.7 1.2 1.1
Unemployment rate 2.5 2.2 2.0 2.0 2.1
Policy interest rate (end-year) -0.17 1.00 1.75 1.25 1.25
Exchange rate, USDCHF (end-year) 0.94 0.92 0.84 0.90 0.90
Source: Fitch Ratings

Special Report │ 13 March 2024 fitchratings.com 18

 Sovereigns
Economics
Global

Australia Australia - Household Net Saving Rate

Net saving as a share of household income
The twin economic headwinds of restrictive monetary policy and (%) 2015-2019 average
concerns about China that weighed on Australia’s economy in 2H23 30
are likely to persist for much of 2024, weighing on the growth
outlook. GDP did increase by 0.2% qoq in 4Q23, but the breakdown 25
was not encouraging. Net trade made a positive contribution but
20
only because imports fell faster than exports, which recorded their
second consecutive decline. Domestic demand was also weak, with 15
a broad-based decline in investment, and with consumer spending
barely growing. 10

We expect the outlook for the external sector to be fairly subdued 5

in 1H24. Exports have so far held up, buoyed by a strong rebound in
tourism and education services activity in particular, which dropped 0
sharply during the pandemic. But these increases won't be
-5
repeated. And widespread weakness in new China property sales 2005 2008 2011 2014 2017 2020 2023
will weigh on construction demand there and take a toll on
Source: Fitch Ratings, ABS, Haver Analytics
Australian exports. Business confidence among Australian
companies is still weak by historical standards and their
expectations have deteriorated. Australia - Inflation Indicators
Headline CPI Trimmed mean CPI
Australian consumers are under pressure from restrictive (%, yoy) RBA target range
monetary policy. Although consumer spending increased in 4Q23, 8
this was entirely down to consumption of essential items; 7
discretionary spending contracted 0.9% qoq in 4Q23. The fall in the
6
net saving rate below its 2015-2019 average suggests that
households are now starting to draw on their pandemic-era savings 5
to fund their spending. And interest payments as a share of income 4
have risen by around 4pp in the past two years, placing an additional
3
burden on households.
2
The disinflationary trend is intact, with headline inflation falling
1
sharply in 4Q23, to 4.1% from almost 8% a year earlier. The monthly
indicator suggests that this will continue in early 2024 and there is 0
a chance that inflation will be lower in 1Q24 than the Reserve Bank -1
of Australia (RBA) expected in its latest set of forecasts. 2004 2007 2010 2013 2016 2019 2022

However, the RBA has continued to sound hawkish, emphasising Source: Fitch Ratings, ABS, Haver Analytics
the stickiness of services inflation and the impact of unit labour
costs growth, as well as the risk of inflation expectations drifting
higher. We expect the first rate cut to come only in September with
another cut in 4Q23 taking the cash rate to 4% by end-2024 and
then a further loosening in 2025 to 3% by end-year. This should
provide renewed impetus to growth from 2H24, allowing for GDP
growth to recover to 2.2% in 2025.

Australia - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 2.2 3.9 2.0 1.4 2.2
Consumer spending 1.5 6.7 0.9 0.8 1.7
Fixed investment 2.7 2.3 5.4 2.1 2.4
Net trade (contribution pp) -0.3 -1.7 1.1 0.5 0.3
CPI inflation (end-year) 3.4 8.4 3.4 3.0 2.8
Unemployment rate 4.8 3.7 3.7 4.2 4.4
Policy interest rate (end-year) 1.36 3.10 4.35 4.00 3.00
Exchange rate, USDAUD (end-year) 1.43 1.48 1.46 1.50 1.40
Source: Fitch Ratings

Special Report │ 13 March 2024 fitchratings.com 19

 Sovereigns
Economics
Global

Canada Canada - Real GDP

Canada’s economy narrowly avoided a technical recession in 2H23, GDP
(Index, 4Q19=100) GDP per capita
with a non-annualised 0.2% qoq increase in GDP in 4Q23 as a fall in 105
domestic demand was offset by a positive contribution from net
trade. But the modest increase in aggregate GDP should be viewed
in the context of yet another big rise in the population; in per-capita 100
terms, GDP fell further and is now some 2.5% below its 4Q19 level.
The outlook for the external sector is brighter than we had forecast
95
in December’s GEO. The greater economic resilience in the US and
our upgraded forecast for US GDP growth in 2024 explain why we
now expect a positive contribution to Canadian growth from net
90
trade this year.
However, the domestic demand outlook is much bleaker, keeping
overall GDP growth at just 0.8% in 2024. The impact of policy 85
tightening is still being felt. Investment remains feeble, with all 2017 2018 2019 2020 2021 2022 2023
components contracting in 4Q23. Almost half of companies report Source: Fitch Ratings, StatCan, Haver Analytics
that borrowing costs are causing them difficulty. Households, too,
are increasingly reporting financial stress, with around 15% of their
Canada - Inflation
disposable incomes now going on servicing their debt. Among the Headline CPI
stock of mortgages outstanding in February 2022, 80% will have (%, yoy) Average of CPI-trim and CPI-median
been subject to a payment increase by end-2025, Bank of Canada 9
(BOC) analysis indicates. In late 2023, only 45% had seen an 8
increase in their payments. 7

Strong immigration is likely to continue to boost consumer 6

spending in aggregate. But the BOC’s Canadian Survey of 5
Consumer Expectations for 4Q23 revealed substantial caution on 4
the part of consumers – almost a third think the impact of policy rate 3
rises is only just starting to take a toll on their spending. Moreover,
2
there is growing evidence that the labour market is cooling and,
with immigration boosting the overall labour force, we expect the 1
unemployment rate to climb to above 6%, having reached 5.8% in 0
February. -1
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
One support for consumers will be slowing inflation. Headline
inflation dropped to 2.9% in January, from almost 6% a year earlier. Source: Fitch Ratings, StatCan, Haver Analytics
But momentum in the BOC’s preferred measures of underlying
inflation CPI-median and CPI-trim has stalled. We therefore think
the BOC will wait until June, when inflation should be falling more
meaningfully, to start cutting the policy rate and we expect it to end
2024 at 4% and 2025 at 3%.

Canada - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 1.4 3.8 1.1 0.8 1.5
Consumer spending 1.4 5.1 1.7 0.8 1.3
Fixed investment 0.2 -2.4 -3.2 -0.5 2.5
Net trade (contribution pp) -0.2 -1.5 1.3 0.3 -0.1
CPI inflation (end-year) 3.4 6.3 3.4 2.3 2.0
Unemployment rate 6.7 5.3 5.4 6.4 6.1
Policy interest rate (end-year) 1.86 4.25 5.00 4.00 3.00
Exchange rate, USDCAD (end-year) 1.31 1.36 1.33 1.35 1.35
Source: Fitch Ratings

Special Report │ 13 March 2024 fitchratings.com 20

 Sovereigns
Economics
Global

Brazil Brazil - Selic and Inflation Expectations

Selic (%)
Brazil posted real GDP growth of 2.9% in 2023. It started the year Selic (%, ex ante real terms)
(%, yoy) 12-month inflation expectation (%, yoy)
on a strong note and cooled considerably by the end. A record 16
agricultural harvest early in the year explains most of this
14
sequential slowdown, while performance net of this was more
12
stable and around-trend. A strong fiscal impulse and a resilient
labour market supported consumption, offsetting a drag from tight 10
monetary policy. 8
6
We project growth to ease to 1.7% in 2024. The agricultural harvest
is poised to be strong again this year albeit less so than last year, 4
thus posing an adverse base effect. Fiscal policy tightening after last 2
year’s expansion will restrain activity, but further relaxation in 0
monetary policy should provide offsetting support to credit and -2
confidence. Structural reforms in recent years, including a major tax -4
reform last year, could boost trend growth, though a fall in 2020 2021 2022 2023 2024
investment/GDP to 16.5% is an inauspicious sign, for now.
Source: Fitch Ratings, IBGE, Haver Analytics
Inflation fell to 4.6% yoy at end-2023. We project it to moderate to
4.0% by end-2024, above the 3.0% target midpoint but within the Brazil - Real GDP Growth
target band. Recent monthly prints have signalled some lingering o/w agriculture
stickiness in core and services inflation. (%, yoy) o/w other
Real GDP
5
The central bank (BCB) initiated its monetary loosening cycle in
2023, delivering 200bp in cuts to its Selic rate in 2H23, and we 4
expect a total of 275bp of cuts in 2024, taking the rate to 9.0% by 3
year-end. The BCB continues to signal that fiscal uncertainties and
2
expectations, which are still slightly above the target midpoint, as
justification for a cautious pace of loosening, and it could move 1
more slowly should these trends worsen. 0

The Brazilian real continues to hover about USDBRL 5.0 and we -1

expect it to be at USDBRL 5.1 at year-end, balancing domestic -2
monetary loosening and supportive current-account flows. Fiscal -3
policy signals could influence the path of the real this year,
-4
specifically around preservation (or not) of this year’s fiscal target,
2011 2013 2015 2017 2019 2021 2023 2025
as well as compliance with possible spending cuts required by the
fiscal rule should revenue underperform. Source: Fitch Ratings, IBGE, Haver Analytics

Brazil - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 1.7 3.0 2.9 1.7 2.1
Consumer spending 1.7 4.1 3.1 2.7 2.4
Fixed investment 2.7 1.0 -2.9 0.8 2.4
Net trade (contribution pp) 0.3 0.7 1.4 0.1 -0.1
CPI inflation (end-year) 5.8 5.8 4.6 4.0 3.5
Policy interest rate (end-year) 7.89 13.75 11.75 9.00 8.50
Exchange rate, USDBRL (end-year) 4.93 5.22 4.84 5.10 5.20

Special Report │ 13 March 2024 fitchratings.com 21

 Sovereigns
Economics
Global

Russia Russia - Inflation Measures

The Russian economy continues to perform stronger than expected (%, yoy) Headline CPI Core Goods Services

– despite the imposition of international sanctions – and grew faster 21

than each of the G7 economies in 2023. Data revisions show the 18
economy contracted by just -1.2% in 2022 from a previous estimate
of -2.1%, while in 2023 the economy grew by 3.6%. That strength 15
continued into 4Q23 with an increase in economic activity of 5% 12
yoy on a non-seasonally adjusted basis. This corresponds to a 1%
quarterly gain in seasonally adjusted terms, according to our 9
calculations. High-frequency data also point to ongoing economic 6
momentum with manufacturing PMIs in the mid-50s and industrial
production growing strongly in January. 3

A significant increase in defence and social spending related to the 0

war in Ukraine is helping to boost output. We now expect the
-3
economy to grow by 1.9% in 2024, representing a significant 2016 2017 2018 2019 2020 2021 2022 2023 2024
upward revision on our previous projection of 1.5%. Consumption
Source: Fitch Ratings, Federal State Statistics Service, Haver Analytics
has been a major driver of growth in the past year, given the
increase in employment, the lowest unemployment rate in more
than two decades and double-digit growth in wages. We expect Russia - Household and Corporate Loans
consumption to slow noticeably in 2024, with surveys already Household loans Corporate loans
(%, yoy)
pointing to households’ growing propensity to save, while the 35
doubling in policy rates to 16% in the past year is likely to cool
activity. Labour shortages remain a key constraint on the expansion 30
of goods and services output, and business surveys suggest the
labour market remains tight. 25

Strong domestic demand has been met by growing constraints on 20

the supply side and this imbalance has been reflected in rising
inflation. Headline CPI has more than doubled since June 2023 to 15
7.4% in January 2024. Core inflation also has risen, to 7.2%, while
10
inflation expectations have moderated since the start of the year.
We expect policy rates to remain at 16% for most of this year but to 5
end it at 13% with cuts implemented in 4Q24. Our new policy rate
forecast appears to be in line with the Central Bank of Russia’s 0
(CBR) monetary policy statement. In February, the CBR said that 2019 2020 2021 2022 2023 2024
the return of inflation to target and its further stabilisation close to Source: Fitch Ratings, CBRF, Haver Analytics
4% assumes that “tight monetary conditions will be maintained in
the economy for a long time”.

Russia - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 1.6 -1.2 3.6 1.9 1.4
Consumer spending 3.0 -1.1 6.1 0.6 1.5
Fixed investment 4.2 6.7 10.5 0.6 2.1
Net trade (contribution pp) -1.8 -1.0 -6.1 0.3 0.0
CPI inflation (end-year) 6.8 11.9 7.4 6.5 4.5
Policy interest rate (end-year) 7.91 7.50 16.00 13.00 9.00
Exchange rate, USDRUB (end-year) 72.83 70.34 89.69 92.00 94.00
Source: Fitch Ratings

Special Report │ 13 March 2024 fitchratings.com 22

 Sovereigns
Economics
Global

India India - GDP Growth and Components

Economic growth has continued to outperform our quarterly Domestic demand Net trade
(%, yoy, pp) Inventories/residual GDP
forecasts; real GDP rose by 8.4% yoy in 4Q23, a much stronger
30
increase than we had expected in the December GEO (6.1%), driven
by domestic demand (investment growth increased 10.6% yoy,
20
while private consumption was 3.5% higher). With GDP growth
having exceeded 8% for three consecutive quarters, we expect an 10
easing in growth momentum in the final quarter of the current fiscal
year, implying an estimate of 7.8% for growth in FY23-24 0
(marginally higher than the government’s estimate of 7.6%).
-10
Recent quarterly data have shown that GDP is rising much faster
than gross value-added – indirect taxes net of subsidies is the
-20
difference between the two – and this unusually wide gap may
normalise. Strong business survey data for January and February
-30
represent an upside risk to these estimates. 2018 2019 2020 2021 2022 2023
We expect the Indian economy to continue its strong expansion, Source: Fitch Ratings, CSO, Haver Analytics
with real GDP forecast to increase by 7.0% in FY24-25, a 0.5pp
upward revision from our December forecasts. Domestic demand,
especially investment, will be the main driver of growth, amid India - Inflation Measures
Headline Core
sustained levels of business and consumer confidence. Our RBI inflation target RBI upper CPI band target
forecasts imply that growth in the short term will outpace the RBI lower CPI band target
economy’s estimated potential, and that the pace of growth of (%, yoy)
8
activity will then moderate towards trend in FY25, with real GDP
rising by 6.5%. 7
6
Consumer price inflation picked up in the last months of 2023
driven by food prices. CPI inflation reached 5.7% yoy in December, 5
before falling to 5.1% in February. Core inflation measures are 4
steadily declining, underlining that developments in food prices
3
(which account for around half of India’s consumer price index) will
be key to inflation developments and the pace at which inflation will 2
approach the Reserve Bank of India’s (RBI) 4% mid-point of its 2%- 1
6% target band. We expect headline inflation to steadily decrease 0
to 4% by calendar year-end on the assumption that recent food 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
price volatility will subside.
Source: Fitch Ratings, MOSPI, Haver Analytics
The RBI has kept its key policy rate at 6.5%, and in its
communication has focused on confirming its hawkish policy stance
of “withdrawal of monetary accommodation” and the need to bring
inflation down towards target. We now think that the RBI will cut
rates only in 2H24 and by 50bp (revised from 75bp in December) in
view of the stronger growth outlook.

India - Forecast Summary

(%) FY starting April Annual Avg. 2019-2023 FY22-23 FY23-24F FY24-25F FY25-26F
GDP 4.5 7.0 7.8 7.0 6.5
Consumer spending 4.4 6.8 3.6 5.0 4.8
Fixed investment 5.9 6.6 11.3 10.5 7.6
Net trade (contribution pp) 0.0 0.5 -2.8 2.2 0.7
CPI inflation (end-cal. year) 5.6 5.7 5.7 4.0 4.0
Policy interest rate (end-cal. year) 5.09 6.25 6.50 6.00 5.75
Exchange rate, USDINR (end-cal. year) 75.93 82.79 83.12 83.12 83.12
Source: Fitch Ratings

Special Report │ 13 March 2024 fitchratings.com 23

 Sovereigns
Economics
Global

Korea South Korea - Merchandise Exports and Imports

Real GDP increased 0.6% qoq in 4Q23, implying that the full-year (%, yoy, 3mma) Exports Imports
growth rate for the Korean economy was 1.3%, in line with our 60
estimate in the December GEO. We expect that for 1H24, 50
consumption will be constrained by high interest rates, weak real
40
income dynamics, a still-weak outlook for property prices and the
construction sector, and concerns about household indebtedness 30
(which has started to decline, but remained close to 100% of GDP in 20
3Q23). Consumer confidence has improved moderately in recent
10
months, while overall business sentiment has stabilised at levels
below those of 2021 and 1H22. 0

A steady pick-up in exports, particularly in IT sectors, will offset a -10

weak short-term outlook for the household sector. Export volumes -20
in the three months to January were 11.5% higher than a year -30
earlier, with IT exports increasing by more than 19%, and within 2019 2020 2021 2022 2023 2024
these, semiconductors up by about 40%. The strength of external
Source: Fitch Ratings, Korea Customs Service, Haver Analytics
demand is offsetting the weakness in demand from China (the value
of exports in US dollar terms to China has been falling in yoy terms
since June 2022, but in the most recent months has shown signs of South Korea - Inflation and Wage Growth
stabilising). We expect real GDP growth to pick up to 2.1%, Consumer prices Average wages
unchanged from the December GEO. (%, yoy)
9
For 2025, we expect some of the constraints on consumer spending 8
to ease, and along with a still-robust outlook for exports and 7
investment, this will translate into a rise in qoq GDP growth rates,
6
and an annual GDP growth rate of 2.7%.
5
Consumer price inflation edged down to 2.8% in January from highs
4
in September and October, although it then rose to 3.1% in
3
February due to temporary factors. Easing food price inflation has
contributed to the moderating pressures, while core inflation is 2
falling more steadily. We expect headline inflation to ease further 1
to 2.3% by year-end, before falling to 1.7% by end-2025. 0

We expect that with inflation still considerably higher than the -1

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Bank of Korea’s (BOK) 2% target, it will still take a few months for
BOK to cut interest rates. We expect the policy rate to be lowered Source: Fitch Ratings, Statistics Korea, MOEL, Haver Analytics
by 50bp in 2024, and then by 50bp in 2025, as inflation falls towards
target. The bank’s Monetary Policy Board was unanimous in its
latest monetary policy decision in February to keep rates at 3.50%.

Korea - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 2.0 2.6 1.3 2.1 2.7
Consumer spending 1.4 4.1 1.8 1.0 2.2
Fixed investment 1.1 -0.5 1.2 1.0 3.2
Net trade (contribution pp) 0.5 0.2 0.1 1.3 0.4
CPI inflation (end-year) 2.4 5.0 3.2 2.3 1.7
Policy interest rate (end-year) 1.70 3.25 3.50 3.00 2.50
Exchange rate, USDKRW (end-year) 1,217 1,267 1,289 1,290 1,290
Source: Fitch Ratings

Special Report │ 13 March 2024 fitchratings.com 24

 Sovereigns
Economics
Global

Indonesia Indonesia - GDP Growth

Investment Government spending
Economic growth picked up slightly in 4Q23, with GDP rising to Private consumption Net trade
5.0% yoy from 4.9%, with domestic demand expanding strongly, (%, yoy, pp) Other GDP
8
exports recovering from lower demand and commodity price
weakness in the middle of the year. For 2023 as a whole, GDP 6
growth was also 5.0%, in line with the December GEO estimate.
4
Short-term indicators and confidence data for the start of 2024
point to a continued expansion in economic activity. 2

We expect lower export growth in 1H24 due to lower demand from 0

China, but this will be relatively short-lived. A strong domestic -2
investment cycle and consumption growth will support growth, as
will some expected increase in fiscal spending in the run-up to local -4

elections in November. Credit data point to an increase in lending -6

to the private sector. We forecast GDP growth for 2024 to be 4.9%,
-8
only marginally lower than in the December GEO.
2017 2018 2019 2020 2021 2022 2023
We expect economic growth to be maintained at close to its trend Source: Fitch Ratings, Badan Pusat Statistik, Haver Analytics
rate in 2025, with investment growth accelerating (both in the
private sector and in the context of spending on national strategic
Indonesia - Consumer Price Inflation and Inflation Target
projects) and still-robust consumer spending enabling the economy
Core inflation Headline inflation
to expand by 5.3% in real terms. (%, yoy) Inflation target
6
Consumer price inflation has remained close to end-2023 levels
(2.8%), after falling steadily last year. Inflation is now within 5
Indonesia’s new target for 2024 of 2.5% with a +/- 1% tolerance Upper band
band. Core inflation is running even lower, at about 1.7%. We
4
expect headline inflation to remain close to the current level this
year (our end-2024 forecast is 2.7%), and to increase to 3.0% by
3
end-2025 as demand pressures strengthen; our projections imply
that the more volatile elements of the inflation basket do not Lower band
2
fluctuate excessively. The more volatile components of the basket
recorded strong annual price increases, averaging 7.8% in January
1
and February.
The prospect of cuts in global interest rates should support the 0
Indonesian rupiah in the coming months, which has depreciated by 2017 2018 2019 2020 2021 2022 2023 2024
around 2% since end-2023. We expect the rupiah to strengthen by Source: Fitch Ratings, Badan Pusat Statistik, Haver Analytics
around 4% in 2025. We still expect Bank Indonesia to cut policy
rates by 75bp this year, but also expect the central bank to wait until
interest rates start falling in the US before reducing its own rates.

Indonesia - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 3.4 5.3 5.0 4.9 5.3
Consumer spending 2.9 5.0 4.9 3.8 4.8
Fixed investment 2.8 3.9 4.4 5.2 5.6
Net trade (contribution pp) 0.5 0.8 0.7 1.1 0.7
CPI inflation (end-year) 2.9 5.4 2.8 2.7 3.0
Policy interest rate (end-year) 4.64 5.50 6.00 5.25 4.50
Exchange rate, USDIDR (end-year) 14,625 15,731 15,416 15,600 15,000
Source: Fitch Ratings

Special Report │ 13 March 2024 fitchratings.com 25

 Sovereigns
Economics
Global

Mexico Mexico - Semi-Monthly CPI

Headline Core goods
Weaker than expected GDP growth in 4Q23 – at 0.1% qoq versus Core services Non-core
(%, yoy)
0.9% in the December GEO – has prompted a modest cut to our 14
2024 forecast to 2.2% from 2.4%. All three main sectors of the
12
economy recorded weakness in the final quarter of last year, with
output declining in both agriculture and industry and services 10
slowing markedly. High-frequency data such as the manufacturing 8
PMI and the IGAE nowcast point to a rebound in growth at the start
6
of 2024.
4
We expect investment to continue to support growth this year, but
2
it will not expand at the very rapid 20% annual pace reported last
year. With the bulk of the major infrastructure projects, such as the 0
Maya Train and the Tehuantepec interoceanic corridor, now -2
complete, investment growth is likely to moderate this year to a still -4
robust 6%. 2016 2017 2018 2019 2020 2021 2022 2023 2024

Stronger US growth this year will be a boon for the Mexican Source: Fitch Ratings, INEGI, Haver Analytics
economy but high policy rates are likely to weigh on credit growth.
Looser fiscal policy will be supportive of growth this year. Growth is
Mexico - GDP and Components
expected to slow to 2.0% in 2025 as the US economy slows and
Agriculture Mining
fiscal policy turns less supportive. Electricity Construction
Manufacturing Services
Headline CPI ended last year at 4.7%, roughly in line with our (%, qoq, pp)
Taxes GDP
2.0
December forecasts, and has drifted lower to 4.3% in the second
half of February according to the semi-monthly inflation measure.
1.5
The CPI breakdown also showed that core inflation has stagnated
since the start of the year, with the decline in core goods inflation 1.0
not matched by core services inflation. The latter remains at 5.3%,
underpinned by rapid wage growth. Non-core inflation had 0.5
increased noticeably in 4Q23, given sharp rises in the prices of fruit
and vegetables, but is now beginning to moderate. 0.0

We continue to expect headline inflation to slow and to end this -0.5

year at 4%, unchanged from the December GEO. With inflation
almost in sight of Banxico’s inflation target of 3% (+/- 1pp), we -1.0
expect the central bank to begin its easing cycle with a 25bp cut on 1Q21 3Q21 1Q22 3Q22 1Q23 3Q23

the 21 March, followed by a similar cut in May and further easing in Source: Fitch Ratings, INEGI, Haver Analytics
to end this year at 9.25%.

Mexico - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 0.8 3.9 3.2 2.2 2.0
Consumer spending 1.6 5.2 4.1 2.2 2.0
Fixed investment 3.1 7.7 19.7 6.2 2.8
Net trade (contribution pp) -1.1 0.0 -5.4 -0.7 -0.2
CPI inflation (end-year) 5.2 7.8 4.7 4.0 3.8
Policy interest rate (end-year) 7.35 10.50 11.25 9.25 7.50
Exchange rate, USDMXN (end-year) 19.78 19.41 16.92 18.00 18.50
Source: Fitch Ratings

Special Report │ 13 March 2024 fitchratings.com 26

 Sovereigns
Economics
Global

Poland Poland - CPI Inflation Measures

Headline Goods
The Polish economy grew just 0.2% in 2023 after strong growth of (%, yoy) Services Core
5.3% in 2022, with solid gains in investment offset by declines in 21
consumption and exports. Growth was also weak in 4Q23 at 1.0%
18
yoy (on a non-seasonally adjusted basis), below our December
forecast of 3.5% yoy. 15

Private consumption was the main driver of growth in 2022 but 12

several factors caused it to decline in 2023, including the large real 9
income shock, past monetary tightening, slowing credit growth and
waning consumer confidence. Against this backdrop, households 6

took advantage of a generous mortgage subsidy scheme with 3

mortgage applications surging before the scheme ended in
0
December.
-3
We expect private consumption to improve this year and next, 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
supported by the recent minimum wage increase, welfare schemes,
strong wage growth and falling inflation. Fiscal policy is also set to Source: Fitch Ratings, CSO, National Bank of Poalnd, Haver Analytics
remain relatively loose this year, though weak growth in Germany
is likely to weigh on the Polish economy.
Poland - Bank Lending
Headline inflation has slowed rapidly in recent months and Corporates Households
(%, yoy)
January’s print showed a significant drop to 3.9% from 6.2%. This 20
was driven by a fall in fuel prices and last year’s sizeable month-on-
month print dropping out of the annual CPI calculation. Core and 15
services CPI also continue to fall but the latter remains high at just
over 8%. 10
We expect further declines in headline inflation due to favourable
base effects, although this will be disrupted in April, when the VAT 5
rate on food will move to 5% from 0%. This is likely to add around
1ppt to inflation. An upside risk to our forecast is on whether the 0
government maintains the current freeze on utility prices. In our
current inflation forecast we assume the government keeps this -5
policy in place, although it is exploring scenarios for a phased or full
removal. -10
2012 2014 2016 2018 2020 2022 2024
Given the uncertainties surrounding headline inflation, the
Source: Fitch Ratings, National Bank of Poland, Haver Analytics
National Bank of Poland has said that it will focus on the core CPI
rate, which remains high at 6.9%, and a long way from the central
bank’s target. Inflation expectations of households and businesses
have fallen significantly. Nevertheless, given the high inflation
backdrop we expect the central bank to maintain policy rates at
5.75% for most of this year, with a small 25bp cut likely in 4Q24.

Poland - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 3.0 5.3 0.2 2.2 3.2
Consumer spending 1.9 5.2 -1.1 1.5 3.4
Fixed investment 4.1 4.9 8.5 4.9 2.9
Net trade (contribution pp) 0.9 0.1 3.5 0.0 0.2
CPI inflation (end-year) 7.3 16.7 6.1 4.8 3.0
Policy interest rate (end-year) 2.82 6.75 5.75 5.50 4.50
Exchange rate, USDPLN (end-year) 4.05 4.40 3.94 3.90 3.80
Source: Fitch Ratings

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Turkiye Turkiye - GDP and Components

Consumption Government spending
Stronger-than-expected growth and a rising annual inflation rate Investment Net trade
(%, qoq, pp)
are complicating the job of the Central Bank of the Republic of 8
Residual GDP
Turkiye (CBRT), which had hinted at a pause in monetary tightening
after a series of rapid hikes starting in mid-2023. 6

The economy expanded by 1.0% qoq in 4Q23 (on a seasonally 4

adjusted basis), above our December forecast of 0.7% qoq, and
driven by a sharp increase in private consumption, although this 2
followed a decline in the previous quarter.
0
We expect economic momentum to continue in 1Q24 given recent
improvements in the PMI index, consumer confidence and other -2
high-frequency indicators. Growth is then likely to slow in 2H24 as
-4
past monetary tightening and further policy rate hikes, combined
with tighter fiscal, credit and income policies, temper consumption -6
and investment growth. Nevertheless, near-term economic gains 2021 2022 2023
suggest that growth this year will be higher, at 2.8% rather than the Source: Fitch Ratings, Turkstat, Haver Analytics
2.5% we had expected in December.
Inflation trends continue to deteriorate, with annual headline CPI Turkiye - Inflation Rates
jumping to 67.1% in February, driven by a large increase in food Headline Services Core goods
(%, yoy)
prices. Underlying inflation also rose further while services sector 100
CPI reached a new high of 93.8%, buoyed by large increases in hotel
90
and education prices.
80
Past Turkish lira weakness and January’s increase in the minimum
70
wage have fuelled inflation, while unfavourable base effects mean
that headline CPI may exceed 70% by May of this year. 60
50
We expect inflation to slow rapidly in 2H24 owing to the impact of
40
tighter policies and favourable base effects, as large month-on-
month prints from 2023 drop out of the annual CPI measure. 30
20
Given the near-term growth momentum and the deteriorating
outlook for inflation, the new CBRT Governor Fatih Karahan may 10
wish to establish his inflation-fighting credentials with further rate 0
rises. 2014 2016 2018 2020 2022 2024
Source: Fitch Ratings, Turkstat, Haver Analytics
We now think the CBRT will implement two further increases (each
of 250bp) to take policy rates to 50% by mid-2024 before cutting to
45% by year-end as inflation slows. The USDTRY continues to
weaken as inflation deteriorates.

Turkiye - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 4.8 5.5 4.5 2.8 3.1
Consumer spending 10.4 18.9 12.8 3.8 2.0
Fixed investment 2.4 1.3 8.9 3.3 2.5
Net trade (contribution pp) 0.0 0.7 -3.1 0.3 0.6
CPI inflation (end-year) 34.5 64.3 64.8 40.0 20.0
Policy interest rate (end-year) 16.28 9.00 42.50 45.00 27.50
Exchange rate, USDTRY (end-year) 12.08 18.72 29.50 38.00 41.00
Source: Fitch Ratings

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South Africa South Africa - Inflation Measures

Several economic challenges have confronted the South African (%, yoy)
Core CPI Headline Goods Services
economy in recent months, resulting in growth of just 0.6% in 2023. 12
Significant power cuts combined with high inflation and a struggling
logistics sector contributed to economic stagnation. 10

Growth in 4Q23 was in line with our December forecast of just 0.1% 8
qoq, driven by declines in investment and government spending and
a large increase in imports, the latter only partly reversing a 6
substantial decline in 3Q23. The industry breakdown showed an
increase in electricity production in the quarter, which facilitated 4
the rise in manufacturing and mining sector output, with value-
added rising by 0.2% and 2.4%, respectively. 2

We expect power cuts (or load-shedding) to ease in 2024 relative to

0
2023, although we continue to expect power outages and transport
2010 2012 2014 2016 2018 2020 2022 2024
bottlenecks to keep weighing on the economy. The government has
increased some welfare payments and is seeking to increase the Source: Fitch Ratings, Statistics South Africa, Haver Analytics
Social Relief of Distress Grant (SDR) payment though details have
yet to be announced. We continue to expect growth of 0.9% this
South Africa - GVA and Sectors
year.
Agriculture Mining Manufacturing
In 2025 production and exports could benefit from firmer global Electricity Construction Services
(%, qoq, pp) GVA
demand as inflation continues to fall and global central banks ease 2.0
monetary policy. Disinflation should provide a boost to households’
real incomes while policy rate cuts in South Africa should help credit 1.5
growth into 2025.
1.0
Headline annual CPI eased to 5.3% in January after peaking in
0.5
October 2023, with faster declines in goods not matched by stickier
services sector inflation. January numbers showed a slight uptick in 0.0
all CPI measures, including core, and while this still leaves inflation
-0.5
within the central bank’s 3%-6% target range, January’s print may
raise concerns at the bank that the fight against inflation is not over. -1.0

Recent comments by South African Reserve Bank Governor Lesetja -1.5

Kganyago suggested the bank will remain vigilant, that “the job of 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23
taming inflation is not yet done” and that there would be no rate
Source: Fitch Ratings, Statistics South Africa, Haver Analytics
cuts until inflation stabilises at 4.5% and is sustained there. We now
expect policy rates to be reduced in 2Q24 – later than in our
December GEO forecast – ending the year at 7.5% instead of 7% as
we had expected.

South Africa - Forecast Summary

(%) Annual Avg. 2019-2023 2022 2023 2024F 2025F
GDP 0.3 1.9 0.6 0.9 1.3
Consumer spending 0.8 2.5 0.7 0.8 1.0
Fixed investment -1.3 4.8 4.2 0.3 2.4
Net trade (contribution pp) -0.3 -2.0 -0.2 0.5 0.0
CPI inflation (end-year) 4.9 7.2 5.1 5.0 4.0
Policy interest rate (end-year) 5.53 7.00 8.25 7.50 6.00
Exchange rate, USDZAR (end-year) 16.10 16.99 18.52 18.50 18.50
Source: Fitch Ratings

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Appendix 1

Quarterly GDP QOQ

(%) 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24
US 0.7 0.6 0.6 0.5 1.2 0.8 0.5 0.2 0.2 0.2
Eurozone 0.5 0.0 0.0 0.1 -0.1 0.0 0.2 0.3 0.3 0.4
China 4.0 0.6 2.1 0.6 1.5 1.0 1.0 1.0 1.3 1.2

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

Brazil 0.9 0.2 1.3 0.8 0.0 0.0 0.7 0.6 0.5 0.5
Russia 0.7 1.2 1.1 0.9 0.9 1.0 0.1 0.2 0.3 0.2
India 1.5 1.9 1.5 3.5 1.0 2.0 -0.3 2.6 2.3 2.0
Korea 0.2 -0.3 0.3 0.6 0.6 0.6 0.4 0.4 0.5 0.6
Mexico 1.1 1.0 0.5 0.8 1.1 0.1 0.7 0.6 0.5 0.4
Indonesia 0.9 1.5 1.5 1.3 0.7 1.4 1.1 1.1 1.4 1.3
Turkiye 0.5 1.1 -0.2 3.6 0.3 1.0 0.6 0.3 0.2 0.6
Poland 0.4 -1.5 0.7 -0.1 1.1 0.0 0.6 0.7 0.5 0.9
South Africa 1.8 -1.1 0.3 0.7 -0.2 0.1 0.3 0.3 0.3 0.3

Developed a 0.4 0.4 0.5 0.4 0.5 0.4 0.3 0.3 0.3 0.3
Emerging b 2.7 0.7 1.6 1.0 1.2 0.9 0.7 1.0 1.2 1.1
Emerging ex China 0.9 0.8 1.0 1.6 0.7 0.9 0.3 1.0 0.9 0.9
World c 1.3 0.5 0.9 0.7 0.8 0.6 0.5 0.5 0.6 0.6
a
US, Japan, France, Germany, Italy, Spain, UK, Canada, Australia and Switzerland
b
Brazil, Russia, India, China, South Africa, Korea, Mexico, Indonesia, Poland and Turkiye
c
‘Fitch 20’ countries weighted by nominal GDP in US dollars at market exchange rates (three-year average)
Source: Fitch Ratings

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Appendix 2

Quarterly GDP YOY

(%) 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24
US 1.7 0.7 1.7 2.4 2.9 3.1 3.0 2.7 1.7 1.1
Eurozone 2.5 1.9 1.3 0.6 0.1 0.1 0.2 0.3 0.7 1.2
China 3.9 2.9 4.5 6.3 4.9 5.2 4.2 4.6 4.4 4.7

Japan 1.5 0.7 2.4 2.3 1.6 1.3 0.6 -0.2 1.0 1.2
UK 2.1 0.6 0.3 0.3 0.2 -0.2 -0.4 -0.2 0.3 1.0
Germany 1.2 0.8 -0.1 0.1 -0.3 -0.2 -0.5 -0.2 0.1 0.8
France 1.4 0.7 0.9 1.2 0.6 0.7 0.8 0.5 0.8 1.2
Italy 2.8 2.0 2.3 0.6 0.5 0.6 0.3 0.7 0.8 0.9
Spain 5.3 3.8 4.1 2.0 1.9 2.0 1.9 1.9 1.8 1.7
Switzerland 1.1 1.1 1.6 0.4 0.4 0.6 0.7 1.1 1.3 1.6
Australia 5.8 2.4 2.5 2.1 2.1 1.5 1.3 1.1 1.3 1.7
Canada 4.0 2.2 1.8 1.0 0.5 0.9 0.5 0.5 0.9 1.0

Brazil 4.3 2.7 4.2 3.5 2.0 2.1 1.5 1.3 1.8 2.3
Russia -3.5 -2.7 -1.8 4.9 5.5 5.0 2.9 2.2 1.6 0.8
India 5.5 4.3 6.2 8.2 8.1 8.4 6.3 5.4 6.7 6.8
Korea 3.2 1.4 0.9 0.9 1.4 2.2 2.3 2.1 2.0 1.9
Mexico 4.8 4.5 3.6 3.4 3.5 2.5 2.6 2.4 1.8 2.1
Indonesia 5.7 5.0 5.0 5.2 4.9 5.0 4.6 4.5 5.2 5.1
Turkiye 4.1 3.3 4.0 3.9 6.1 4.0 5.5 2.2 2.1 1.6
Poland 4.1 2.5 -0.3 -0.6 0.5 1.0 1.6 2.5 1.9 2.8
South Africa 4.1 0.8 0.1 1.8 -0.7 1.2 0.9 0.5 1.0 1.3

Developed a 2.0 1.0 1.6 1.8 1.9 1.9 1.8 1.6 1.3 1.1
Emerging b 3.7 2.7 3.8 5.5 4.7 4.8 3.9 3.9 3.9 4.0
Emerging ex China 3.4 2.4 2.9 4.3 4.4 4.2 3.6 2.9 3.2 3.2
World c 2.7 1.6 2.5 3.2 3.0 3.0 2.6 2.5 2.3 2.3
a
US, Japan, France, Germany, Italy, Spain, UK, Canada, Australia and Switzerland
b
Brazil, Russia, India, China, South Africa, Korea, Mexico, Indonesia, Poland and Turkiye
c
‘Fitch 20’ countries weighted by nominal GDP in US dollars at market exchange rates (three-year average)
Source: Fitch Ratings

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 Sovereigns
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Contacts
Economics
Brian Coulton Robert Ojeda-Sierra
Chief Economist +44 20 3530 1664
+44 20 3530 1140 robert.ojeda-sierra@fitchratings.com
brian.coulton@fitchratings.com
Olu Sonola Pawel Borowski
+1 212 908 0583 +44 20 3530 1861
olu.sonola@fitchratings.com pawel.borowski@fitchratings.com

Jessica Hinds Charles Seville

+44 20 3530 2213 +44 20 3530 2642
jessica.hinds@fitchratings.com charles.seville@fitchratings.com

Alex Muscatelli
+44 20 3530 1227
alex.muscatelli@fitchratings.com

Sovereign Ratings
Todd Martinez Shelly Shetty
Americas Americas
+1 212 908 0897 +1 212 908 0324
todd.martinez@fitchratings.com shelly.shetty@fitchratings.com
Thomas Rookmaaker Paul Gamble
Asia Emerging Europe
+852 2263 9891 +44 20 3530 1623
thomas.rookmaaker@fitchratings.com paul.gamble@fitchratings.com
Federico Barriga Salazar Jan Friederich
Western Europe Middle East and Africa
+49 69 768 076 145 +852 2263 9910
federico.barrigasalazar@fitchratings.com jan.friederich@fitchratings.com

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 Sovereigns
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