The world economy is likely to grow a bit faster in 2023 than Fitch Ratings expected in its June Global Economic Outlook (GEO).

However, the deepening slump in China’s property market is casting a shadow over global growth prospects, just as monetary tightening increasingly weighs on the demand outlook in the US and Europe, Fitch said in its September 2023 GEO, released today, September 2023.

Fitch has revised up its forecast for world growth in 2023 by 0.1 percentage points to 2.5%, reflecting surprising resilience so far this year in the US, Japan and emerging markets (EM) excluding China.

“We have raised US growth by 0.8 percentage points to 2.0%, Japan by 0.7pp to 2.0% and Emerging Markets ex., China by 0.5 percentage points to 3.4%”.

This has more than offset a 0.8 percentage points cut to China – to 4.8% – and a 0.2 percentage points cut to the eurozone, to 0.6%. The differential between growth in EM ex. China and developed economies is expected to rise towards historical norms this year partly reflecting the earlier timing of the monetary policy tightening cycle in emerging markets.

“However, we have lowered our 2024 world growth forecast by 0.2 percentage points to 1.9% with widespread downward revisions. We have cut the US growth forecast by 0.2 percentage points to 0.3%, the eurozone by 0.3 percentage points to 1.1%, and both China and EM ex. China by 0.2 percentage points to 4.6% and 3.0%, respectively.

Fitch explained that the previously hoped-for stabilisation in China’s housing market has failed to materialise and new sales could fall by a fifth this year. Housing is a third of investment and 12% of Chinese GDP and has strong multiplier impacts on the wider economy. Policy easing has been underwhelming to date and export demand is falling.

Rapid US consumption growth has continued this year, despite Federal Reserve tightening, helped by a $1.2 trillion drawdown of Covid-19 pandemic savings buffers and robust nominal household income growth - as employment and wages have risen quickly. But labour demand has slowed in recent months and wage inflation will ease further as the labour market continues to cool.