Fitch Ratings Inc. sees Germany and Italy’s economies going into recession by the end of this year as they battle to control inflation, although the Eurozone area will avoid it.
(Bloomberg) — Fitch Ratings Inc. sees Germany and Italy’s economies going into recession by the end of this year as they battle to control inflation, although the Eurozone area will avoid it.
Those economic contractions are unlikely to be severe, but “recession is significant in and of itself,” James McCormack, global head of sovereigns and supranationals at Fitch, said in an interview with Bloomberg TV. The “UK is already probably there,” he added.
The US is also at risk of a “modest” recession toward the end of 2023, he said in Dubai.
German Economy Contracted More Than Expected at End of 2022
Governments around the world are battling to inject some life into their economies as soaring prices — caused in part by Russia’s invasion of Ukraine — hamper growth. Central banks have moved to raise interest rates to counter the trend, and that’s likely to continue, McCormack said.
The US Federal Reserve will probably need to increase rates to 5.5%, he said, up from a range of 4.5% to 4.75%. Fitch is preparing a report to elaborate on the forecast for publication later this month.
The US Treasury Department hit a statutory debt ceiling in January and lawmakers are currently debating raising the limit to avoid a payment default. That scenario is a possibility though not Fitch’s base-case, McCormack said.
One country at much greater risk of default is Pakistan, the Fitch executive said, with the country struggling with inflation above 30% and striving to meet conditions to secure a $6.5 billion International Monetary Fund bailout.
“That’s a critical case to watch, the most critical,” McCormack said.
The outlook for Egypt, another country deep in economic crisis, depends on the ability to secure external financing, most likely from traditional allies in the Gulf region, he said.
One country with a more positive story to tell is Saudi Arabia, with the highest economic growth in the G20 and in the process of diversifying away from oil and opening up to the outside world.
“The level of enthusiasm is palpable in Saudi Arabia,” McCormack said. “Now we are starting to see results.”
(Updates with more comments throughout.)
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