Fitch Ratings revised up its global economic growth forecast for 2023 to 2% from 1.4%, saying growth expectations for this year improved during the past three months.
"Global growth prospects for 2023 have improved significantly since December," the rating agency said Friday in its latest Global Economic Outlook report, but added "the impacts of rate hikes on the real economy still lie ahead and are likely to push the US economy into recession later this year."
Some of the reasons behind the improvement in growth prospects are China abandoning the COVID-19 pandemic restrictions and European natural gas crisis easing significantly in recent months, according to the agency.
"The US economy has more near-term momentum than we anticipated, with robust employment and consumption growth at the start of the year. Household income growth is holding up and savings buffers built up in the pandemic will support spending for a while," it added.
Fitch, however, said it lowered global economic growth estimate for 2024 to 2.4% from 2.7% due to "lagged impact" of rapid interest rate hikes by the US Federal Reserve and the European Central Bank (ECB).
"Central banks are now taking away the punchbowl quite quickly. It is only a matter of time before the impact on the real economy becomes much more visible," Brian Coulton, chief economist at Fitch Ratings, said in a statement.
The agency said it forecasts the Fed funds rate to peak at 5.5% and the ECB's main refinancing operations rate at 4% this June, which are upward revisions of 50 and 100 basis points, respectively, since Fitch's forecasts made in December.
"Monetary tightening is taking longer to slow US demand than expected, but we believe that 525 basis points of rate rises in just 15 months will ultimately weigh heavily on activity," according to the agency.
Fitch said it still forecasts a recession in the US starting in the third quarter of this year, which is a few months after the peak in Fed funds rate.
