Global economic outlook may 2016

Economics

Global Economic Outlook – May 2016 EM Growth Sees Some Respite

• EM weakness, energy still weighing on world growth • US 2016 growth forecast cut to 1.8% on oil-led capex slowdown • China stimulus, commodity stabilisation ease EM growth risk • China growth revised up to 6.3% in 2016 and 2017 • Eurozone recovery on track, but UK marked down on Brexit uncertainty • Fed to resume normalisation; ECB, BOJ won’t push negative rates too far

EM, Energy Adjustments Still Hitting Global Growth Emerging market (EM) weakness and declining investment spending by global energy producers continue to take a heavy toll on world growth.

Energy sector capital spending has fallen at a precipitous rate across the globe, not just in emerging markets but in Canada, Norway and the US. According to the International Energy Agency, upstream global oil capex fell by 24% (equivalent to USD150bn) in 2015 and is expected to fall by another 17% this year. Allied with China’s home-grown investment slowdown and very steep declines in domestic demand in Russia and Brazil, these adjustments have neutralised the benefits of lower oil prices on world growth.

The latest evidence for this was worse-than-expected US GDP growth in 1Q16, where weakness was driven mainly by falling exports and sharp declines in energy sector capex. US exports declined for the second consecutive quarter, with sales to Latin America and Canada leading the way. The strengthening of the US dollar from mid-2014 has likely played a part here, but import growth in the main trading partners of the US has also been weak (in Canada’s case reflecting a sharp decline in investment). Moreover, US oil-related investment fell by 33% in 1Q16.

This was a sharp acceleration in the adjustment that has been underway since mid-2014 and by itself subtracted 0.2% (not annualised) from GDP in the first quarter.

US Business Investment - Oil Contribution Oil

Non - Oil

Business Investment

15

(% yoy, pps)

10

5

0

-5 2010

2011

2012

2013

2014

2015

2016

Source: BEA, Datastream, Fitch

www.fitchratings.com | May 2016

1

Economics

Global Forecast Summary Annual Average 2011-2015

2015

2016f

2017f

2018f

US

2.0

2.4

1.8

2.1

2.3

Eurozone

0.6

1.7

1.6

1.6

1.6

China

7.8

6.9

6.3

6.3

5.8

Japan

0.6

0.6

0.7

0.6

0.7

UK

2.1

2.3

1.9

2.0

2.0

Developed a

1.5

1.9

1.6

1.8

1.9

Emerging b

5.0

3.8

4.1

4.9

5.0

World c

2.6

2.5

2.5

2.9

3.0

US

1.7

0.7

1.3

2.5

2.5

Eurozone

1.4

0.2

1.0

1.8

1.8

China

2.8

1.6

1.8

2.0

2.5

Japan

0.7

0.2

0.6

2.1

1.6

UK

2.3

0.2

1.2

1.8

1.9

US

0.25

0.50

1.00

1.75

2.75

Eurozone

0.59

0.05

0.00

0.00

0.25

China d

5.89

4.35

3.85

3.85

4.35

Japan

0.10

0.10

-0.30

-0.30

-0.30

UK

0.50

0.50

0.75

1.25

1.75

US 10 Year Yield

2.36

2.30

2.20

2.40

3.00

Oil (USD/barrel)

96.8

52.6

35.0

45.0

55.0

USDJPY (end-period)

96.8

121.6

113.4

113.4

113.4

USDEUR (end-period)

0.78

0.92

0.91

0.91

0.91

GBPUSD (end-period)

1.59

1.50

1.36

1.36

1.36

USDCNY (end-period)

6.27

6.45

6.60

6.60

6.60

(%) GDP Growth

Inflation (end of period)

Interest Rates (end of period)

Exchange Rates and Oil

a US, Japan, France, Germany, Italy, Spain, UK, Canada, Australia and Switzerland. b Brazil, Russia, India, China, South Africa, Korea, Mexico, Indonesia, Poland and Turkey. c ‘Fitch 20’ countries weighted by nominal GDP in USD at market exchange rates (3 year average) d One year policy lending rate Source: Fitch

www.fitchratings.com | May 2016

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Economics

These externally-driven shocks have had a broader impact on US corporate sector spending. Business investment excluding oil fell slightly in 1Q16 and while this series is quite erratic from quarter to quarter, it now looks as if US firms are growing more cautious. Against a backdrop of falling capacity utilisation, various business surveys suggest weakening expectations for investment spending. Two consecutive quarters of negative growth in industrial production are unlikely to have helped.

The forecast for US private sector investment in 2016 has been revised down sharply to 0.5%, from 3% in the March GEO. Business investment excluding oil is now expected to remain sluggish for the rest of 2016.

This more than offsets robust rates of residential investment growth and the diminishing impact of further expected cuts in oil capex (the latter now accounts for just 0.3% of GDP).

In the US household sector – a net beneficiary of lower oil prices – spending is holding up better. Consumer spending grew by 0.5% in 1Q16 and real household income continues to expand at a healthy rate.

Energy is a capital intensive sector and has not had much impact on employment growth, while wage inflation has been picking up. Global worries do not seem to have unnerved consumers, whose saving rate has held steady at 5% for the last several years. Nevertheless, consumer spending will not be immune to external shocks and is expected to slow in 2016. US GDP is now expected to grow by 1.8%, the first sub-2% growth rate since 2013.

China – It’s the Economy, Stupid China’s growth was weaker than expected in 1Q16, but higher frequency data points to stabilisation. One of the key developments since March has been the turnaround in housebuilding. While housing demand has been growing since early 2015 this had not, until recently, been accompanied by any pick-up in housing starts. This reflected the large inventory overhang, emanating from the sheer pace of housing construction over 2010 to 2013. However, the data so far in 2016 shows a sharp recovery, with starts up 18% yoy in the first four months of the year.

Housebuilding has powerful multiplier effects on the economy; if the recent pick-up is sustained, this would be a significant boost to the industrial sector. While there was a false dawn on housing starts in mid-2014 – when starts picked up briefly before falling again – that occurred at a time of sluggish sales growth, in contrast to the near 40% yoy increase in sales seen YTD. Moreover, inventories (calculated from the cumulative gap between housing starts and sales since 1999; see chart below) are now falling as sales exceed starts, although inventory levels remain high.

But Near-Term Threats to EM Growth Ease

The housing market recovery reflects earlier monetary, fiscal and macroprudential easing measures, including increased loan-to-value ratios for first-time buyers and housing tax cuts. There is also wider evidence of previous easing measures gaining traction, including the resilience of infrastructure investment, a stabilisation in industrial production growth and a pick-up in credit.

While external headwinds have slowed US growth by more than expected, the risk of a further intensification in the emerging market slowdown looks to have eased somewhat since March. Firstly, there is clearer evidence that policy easing in China is starting to gain traction. Secondly, commodity prices have recovered. And thirdly, the dollar has weakened.

Moreover, there is little reason to expect any swift reversal of the current accommodative policy stance. The March National People’s Conference raised the 2016 target for growth in monetary aggregates and recent official rhetoric suggests that defending the 6.5% minimum GDP growth threshold is a top priority.

China - Housing Inventory*

Commodity Prices

(USD per barrel)

(Inventory in Years of Sales)

2.0

1.0

Metals (RHS)

70

900

60

800

50

700

40

600

30

500

(Index)

Oil

3.0

0.0 1999

2001

2003 2005 2007 2009

2011

2013

2015

* Gap between cumulative starts and sales from 1999 Source: NBS, Datastream, Fitch

20 Jan 15

400 Apr 15

Jul 15

Oct 15

Jan 16

Apr 16

Source: Datastream, CRB, Fitch

www.fitchratings.com | May 2016

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Economics

This near term growth focus is likely to come at the expense of further increases in leverage in the economy, relatively slow progress on capacity reduction and, potentially, rising medium term risks to growth. But the strength of the ongoing commitment suggests that growth will stabilise or increase slightly for the remainder of this year and into 2017. Our latest forecasts are for GDP growth of 6.3% in 2016 and 2017, upward revisions of 0.1% and 0.3%, respectively, since March.

Commodity Prices – Finding a Floor Oil prices have risen 28% since mid-March and metals prices by 11%.

Several factors helped oil prices recover, including clearer evidence of declining US oil production and temporary supply disruptions in some other countries. Global oil demand growth has also proved slightly better than expected, reaching a five-year high of 1.4 million barrels per day in 2015. Improved investor sentiment towards emerging markets has also helped.

However, inventories are at record highs and are unlikely to fall meaningfully until the second half of 2017. Iranian production is recovering swiftly after the removal of sanctions. There also seems little prospect of any improvement in OPEC co-operation. World trade growth also remains subdued. World exports (in volume terms) grew by less than 2% in 2015 and have been flat over the last six months. Against this backdrop, oil prices are assumed to head back only slowly towards a long-run equilibrium price of around USD65 per barrel (pb), averaging USD35pb in 2016 and USD45pb next year.

Metals prices have been rising since the beginning of the year, with iron ore prices briefly reaching USD70/tonne in late April. They have since fallen back to the mid-50s range but are still well above the USD40/tonne lows in late 2015. The recovery in China’s housing sector, which has been accompanied by a pick-up in iron ore imports since late 2015, has been the key factor.

Supply adjustment has been relatively slow, however, with limited progress in closing high-cost global capacity. This makes it hard to see a sustained rebound in iron ore prices. Nevertheless, most industry experts see prices in the USD40 to USD50 range in the next couple of years.

The Dollar – Down, but Not Out The third factor easing pressure on emerging market growth has been the weakening of the dollar. A trade weighted index of the dollar against major exchange rates has fallen by nearly 7% since January, breaking the steady appreciation trend seen from mid-2014. This has been associated with a decline in market expectations of Fed tightening compared to expectations held in late December 2015 ( just after the Fed’s first hike) and downgrades to US growth forecasts. Some commentary has also suggested that a new global accord to weaken the dollar was forged at the G20 meeting in Shanghai in late February. However, this looks exaggerated – the statement was more a reaffirmation of previous commitments not to pursue competitive devaluations.

A weaker dollar reduces the local currency burden of debt service for emerging market borrowers, is typically associated with stronger commodity prices and encourages capital flows to emerging markets.

However, we would caution against drawing too much comfort from recent exchange rate movements. Concerns cited by the Fed in March about global risks have diminished of late. Moreover, with US wage and unit labour cost inflation rising and core inflation measures recently picking up, we believe conditions will be in place for the Fed to resume a gradual path of normalisation in the second half of this year, hiking by a total of 50bps. This is a more hawkish view than currently priced in by the market and implies some renewed dollar strengthening later in 2016.

Europe – Still Muddling Through The lower share of energy production and investment in GDP has likely been one factor explaining the relative resilience of incoming data and forecasts for the eurozone economy. GDP growth was in line with expectations in 1Q16 at 0.5%, with most of the larger economies faring slightly better than expected. Household spending continues to benefit from real income gains driven by a gradually improving labour market and low headline inflation.

Eurozone Bank Credit Growth

Trade Weighted US Dollar (Index)

Private Sector

(% yoy)

100

Corporate

Households

3.0 2.0

95

1.0

90

0.0

85

-1.0 -2.0

80

-3.0 75 Jan 14

Jul 14

Jan 15

Jul 15

Jan 16

Source: Fed, Datastream, Fitch

-4.0 2010

2011

2012

2013

2014

2015

2016

Source: ECB, Fitch

www.fitchratings.com | May 2016

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Economics

There are few signs to date of any tightening of credit conditions following the sell-off in European bank share prices in February. Rather, the latest ECB bank lending survey pointed to an easing of credit supply for corporates in 1Q16, while credit growth picked up, albeit from a very low base, for both corporates and households. The eurozone forecast for 2016 has been revised up by 0.1% to 1.6%. Forecasts for the UK, however, have been revised down, reflecting the impact of uncertainty ahead of the Brexit referendum.

Monetary Policy – Low Rates and High Hopes Against the backdrop of sluggish growth and very low headline inflation rates in the advanced economies there have been increasingly loud calls for policy makers at the major central banks to ramp up stimulus efforts even further. This debate has focussed on unconventional measures, including further balance sheet expansion and testing how far the floor on policy interest rates can be pushed below zero (see chart below).

The possibility of “helicopter money” – involving a fiscal expansion funded directly by central banks printing money and/or a write-off of the portion of government debt held by central banks to ease fiscal policy constraints – has also been discussed by many commentators.

However, there are also rising concerns about the unintended consequences of further unconventional measures. With regard to negative policy interest rates, the likelihood that banks will be unable to pass on negative rates to depositors could damage bank profitability and hence their willingness to lend. At the same time the risk of a wider move towards cash holdings, with implications for financial stability, have to be considered. The expansion of asset purchase programmes is seeing central banks becoming very large price insensitive buyers in government bond and other fixed income markets (and, in Japan, other asset markets); this could have adverse implications for market liquidity and price discovery mechanisms. Meanwhile helicopter money would have major implications for central bank independence, increasing the threat of fiscal dominance of monetary policy. It has already been virtually ruled out by a number of central bank officials.

US

3.0

Germany

The need to prevent inflation expectations falling further will likely see both the BOJ and the ECB continue expanding their balance sheets aggressively for some time. The ECB raised the rate of its monthly asset purchases to EUR80bn per month (from EUR60bn) in March and broadened the list of eligible assets to include non-financial corporates.

We expect ECB purchases to continue beyond March 2017, albeit likely at a lower rate. However, we do not anticipate the BOJ and the ECB taking interest rates much further into negative territory. The ECB’s main repo rate is expected to remain at 0% and the BOJ is expected to cut rates by only another 20 bps, to -0.3%.

Global Growth – Set to Rise From 2017 Fitch’s global growth forecasts are unchanged since March, with a slightly weaker outlook for developed countries in 2016 offset by a small upgrade to emerging market growth. World growth should rise in 2017 as GDP stabilises in Brazil and Russia and headwinds from declining energy investment start to ease. Global growth should remain around 3% in 2018, with Fed rate hikes picking up pace.

Revisions to Fitch 2016 GDP Forecasts

Benchmark 5-year Government Bond Yields (%)

Both the BOJ and the ECB have tempered recent moves into negative interest rates with offsetting measures to protect banks. In the ECB’s case, a further cut to the deposit rate to -0.4% in March was accompanied by an effective subsidy to banks who lend (in the form of a negative interest rate on a new targeted longer-term refinancing operation (TLTRO2)). While this innovative move is likely to help the transmission of looser monetary policy to the real economy, the increasing complexity of policy moves could diminish their announcement effect. Indeed, both the ECB and the BOJ saw their currencies appreciate after recent easing measures.

Japan (RHS)

(%)

0.9

0.6

2.0

(% pts)

0.8 0.6 0.4 0.2

0.3

1.0

0.0

0.0

0.0

-0.3

-1.0 2011

2012

2013

2014

2015

2016

Source: Thomson Reuters, Datastream, Fitch

www.fitchratings.com | May 2016

-0.4

South Africa United States Brazil Poland United Kingdom Developed World Australia India Indonesia Italy Japan South Korea Mexico Switzerland Turkey China France Emerging Markets Germany Eurozone Spain Canada Russia

-0.2

Source: Fitch

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Economics

United States External shocks continue to depress US growth, with another GDP disappointment in 1Q16 driven by declining exports and energy investment. GDP growth in 2016 is now forecast at 1.8%, down from 2.1% in the March GEO. GDP expanded by 0.1% in 1Q16 qoq (0.5% annualised), down from 0.3% in 4Q15. Exports fell for the second consecutive quarter and private sector investment declined for the first time since 2011.

The ongoing decline in energy capex accelerated spectacularly in 1Q16, with a fall of 33% (not annualised). But non-oil business investment has also stalled in the last six months.

American industry is now in technical recession with industrial production having fallen for two successive quarters, dragged down by the fall in mining output (see chart below).

US - Industrial Production Total

Struggles on the producer side of the economy are not, however, matched in the household sector. Real incomes continue to grow at a 3% annualised pace, the saving ratio remains stable and housing investment is expanding briskly. Employment has proved resilient to energy sector adjustments (see chart below) The forecast revision is driven by a more sober view of the outlook for non-oil business investment, which has disappointed in recent months.

Energy capex will no doubt continue to fall sharply, but its influence on overall GDP growth will diminish.

The Fed is still expected to raise rates by 50bps by the end of 2016.

Rising wage and unit labour cost inflation, low unemployment and an expected rebound in headline CPI due to the recovery in oil prices will likely prompt a resumption of the normalisation process.

US - Household Income and Employment Household Disposable Income (Real)

Total Exc. Mining

112 (3m/3m annualised, % )

110 (Jan 2011=100)

Non Farm Payrolls

6.0

108 106 104 102

5.0 4.0 3.0 2.0 1.0

100 98 Jan 11

Jan 12

Jan 13

Jan 14

Jan 15

Jan 16

Source: Federal Reserve, Datastream, Fitch

0.0 Jan 14

Jul 14

Jan 15

Jul 15

Jan 16

Source: US BLS, US BEA, Datastream, Fitch

United States - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

2.0

2.4

1.8

2.1

2.3

Consumer Spending

2.2

3.1

2.6

2.4

2.4

Fixed Investment

5.9

4.0

0.5

1.7

3.1

-0.1

-0.6

-0.1

0.0

-0.1

1.7

0.7

1.3

2.5

2.5

Policy Interest Rate (end-year)

0.25

0.50

1.00

1.75

2.75

Exchange Rate, USDEUR (end-year)

0.78

0.92

0.91

0.91

0.91

(%)

Net Trade (contribution pps.)

CPI Inflation (end-year)

Source: Fitch

www.fitchratings.com | May 2016

6

Economics

Eurozone The eurozone recovery accelerated in 1Q16 as GDP grew by 0.5% qoq, following 0.3% in the previous two quarters. Nevertheless, the yoy growth rate declined to 1.5% from 1.6%. Our new GDP growth forecast is stable at 1.6% for 2016-2018, practically unchanged since the March GEO. These numbers imply growth slightly above long-run potential over the next few years as the economy continues to recover gradually from the 2012 recession.

Weaker global growth, including the recent slowdown of the US economy and more persistent weakness in many emerging markets, will have an adverse impact on exports. Domestically, structural rigidities and fragile confidence constrain the stimulus from lower energy prices and the ECB’s further monetary easing.

Household consumption will provide the main contribution to GDP growth over the forecast horizon. Households benefit from higher real disposable income, reinforced in the short run by previous falls in energy prices, gradual improvement in labour markets and progress with balance

Eurozone - Contributions to GDP Growth Consumption Investment GDP

(%, pp)

2.0

Government Spending Net Exports

sheet adjustment. Weak growth potential, the fragile global outlook and subdued confidence will act as a persistent drag on business investment – despite easing financial conditions driven by the ECB’s March measures, which introduced a direct subsidy for bank lending.

Net exports will be broadly neutral over the forecast horizon, despite improved price competitiveness. Export demand will be constrained by weakness in emerging markets – which have a 40% share in extra-EZ exports – and the recent slowdown in the US. In the meantime, the cyclical recovery will also boost import demand.

Inflation (headline HICP) was -0.2% in April 2016 and has been oscillating in a narrow range around 0% since February 2015. Inflation will stay in this range in the next few months before increasing more significantly in mid-2016, driven by oil price dynamics. Core inflation is forecast to remain broadly stable at around 1% over the forecast horizon. However, the long period of very low inflation is increasing downside risks, in particular if second-round effects destabilise longer-term inflation expectations.

Eurozone Contributions Eurozone--CPI GDP Growth (%, pps)

Core

Oil

Residual

HICP

3.2 2.4

1.5

1.6

1.0

0.8

0.5

0.0

0.0

-0.8

-0.5

-1.6 2014

2015

2016f

2017f

2018f

Source: Datastream, Fitch

2010

2011

2012

2013

2014

2015

2016

2017

2018

Source: Eurostat, Fitch

Eurozone - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

0.6

1.7

1.6

1.6

1.6

Consumer Spending

0.1

1.7

1.7

1.5

1.5

Fixed Investment

0.0

2.7

2.2

2.0

2.5

Net Trade (contribution pps.)

0.5

-0.1

-0.2

0.2

0.1

CPI Inflation (end-year)

1.4

0.2

1.0

1.8

1.8

Policy Interest Rate (end-year)

0.59

0.05

0

0

0.25

Exchange Rate, EURUSD (end-year)

1.29

1.09

1.09

1.09

1.09

(%)

Source: Fitch

www.fitchratings.com | May 2016

7

Economics

China China’s GDP growth disappointed in 1Q16, but there has been increasing evidence in recent months of previous policy stimulus gaining traction on activity. The extent of the government’s determination to defend growth targets has also become clearer.

GDP grew by 6.7% yoy in 1Q16, down slightly from 6.8% in 4Q16.

However, this figure was flattered by base effects. Sequential growth in Q1 was only 1.1%, the first sub 5% annualised figure since the quarterly data began being produced in late 2010.

Recent monthly data paint a brighter picture, with a clear turnaround now evident in the housing market, a pick-up in infrastructure investment, stronger credit growth and a stabilisation in industrial production growth.

Meanwhile, consumption and service sector indicators remain resilient.

The latest activity data suggest earlier monetary, fiscal and macroprudential easing measures have boosted the real economy despite concerns over the impact of capital outflows and financial market

China - Industrial Production and Investment

China - Housing Market

Industrial Production (Volume) Fixed Asset Investment (Value, RHS)

25 20

8

15

6

10

4

5 2013

2014

2015

House Prices (RHS)

(% yoy)

10

2012

Although the near-term outlook has improved, macro policy easing focussed on credit and investment is unlikely to support growth on a sustainable basis. This will require better productivity performance.

Meanwhile, the ever-rising debt burden is likely to weigh increasingly on firms’ abilities to expand investment. Growth is expected to fall below 6% in 2018.

Sales

Starts

50

15

40

12

30

9

20

6

10

3

0

0

(% yoy)

12

The recent pick-up in housebuilding and infrastructure should start to benefit industry more widely and support a pick-up sequential GDP growth to around 1.5% through the rest of 2016.

With the growth target of 6.5% likely to remain a high priority at least until the transition of the Politburo Bureau Standing Committee in November 2017, policy is expected to remain accommodative for some time. The 2017 growth forecast has been revised up by 0.3% to 6.3%.

(Volume, % yoy, 3mma)

(% yoy)

volatility on activity. Moreover, the increase in monetary growth targets at the March National People’s Congress and wider official rhetoric reveals a more assertive policy focus on stabilising near-term growth.

-10

-3

-20

-6

-30

-9 2011

2016

2012

2013

2014

2015

2016

Source: NBS, Soufun, Datastream, Fitch

Source: NBS, Datastream, Fitch

China - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

7.8

6.9

6.3

6.3

5.8

Consumer Spending

9.1

8.1

7.5

7.7

7.8

Fixed Investment

7.7

5.8

5.2

5.5

3.7

-0.3

-1.3

0.5

0.2

0.4

2.8

1.6

1.8

2.0

2.5

Policy Interest Rate (end-year)

5.89

4.35

3.85

3.85

4.35

Exchange Rate, USDCNY (end-year)

6.27

6.45

6.60

6.60

6.60

(%)

Net Trade (contribution pps.)

CPI Inflation (end-year)

Source: Fitch

www.fitchratings.com | May 2016

8

Economics

Japan Growth was slightly better than expected in 1Q16 at 0.4% qoq, with consumption recovering after a decline in 4Q15. However, with wage growth still subdued and the yen having strengthened significantly since March, we have maintained our 2016 growth forecast at 0.7%. Growth is projected at 0.6% in 2017 assuming no delay in the consumption tax hike currently planned for April 2017.

A series of earthquakes that struck southern Japan between 14-16 April 2016 are likely to dampen growth in Q2. Disruptions to supply chains, particularly for the auto industry, could have constrained activity. However, reconstruction projects are likely to boost growth in subsequent quarters.

The Bank of Japan took no action at its 28 April 2016 meeting, despite downgrading its economic and inflation outlook. The yen appreciated over 3% on the day of the decision, after many market analysts had called for interest rates to move further into negative territory.

Japan - GDP Growth

The yen has appreciated over 10% against the dollar year-to-date, potentially dragging on net exports and corporate profits. The stronger yen could also add further deflationary pressure.

Governor Kuroda of the Bank of Japan emphasised during a speech on 13 May 2016 that there is still ample room for additional easing, both through interest rates and additional asset purchases. The statement followed market concerns that the shift to a negative interest rate policy (NIRP) was due to qualitative and quantitative monetary easing (QQE) approaching its limits.

Wage growth is set to be tepid in 2016 following the annual spring round of negotiations between companies and labour unions. Data collected from 62 Japanese companies by the Japan Business Federation showed the average agreed increase in monthly salaries was 2.2%, down from 2.6% in 2015.

Japan - Exchange Rates (% yoy)

Annual Growth (RHS)

4.0

USDJPY

REER (RHS, inverted scale)

130

60

3.0

3.0

2.0

2.0

120

70

1.0

1.0

110

80

0.0

0.0

100

90

(USDJPY)

4.0

-1.0

-1.0

90

100

-2.0

-2.0

-3.0

-3.0

80

110

70

1q11 3q11 1q12 3q12 1q13 3q13 1q14 3q14 1q15 3q15 1q16 Source: Datastream, Fitch

(Index, 2010=100)

Quarterly Growth

(% qoq)

120 2011

2012

2013

2014

2015

2016

Source: Bank of Japan, Datastream, Fitch

Japan - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

0.6

0.6

0.7

0.6

0.7

Consumer Spending

0.4

-1.2

0.2

0.0

0.3

Fixed Investment

1.7

0.0

-0.4

0.9

1.2

-0.2

0.4

0.2

0.2

0.3

0.7

0.2

0.6

2.1

1.6

Policy Interest Rate (end-year)

0.10

0.10

-0.30

-0.30

-0.30

Exchange Rate, USDJPY (end-year)

96.8

121.6

113.4

113.4

113.4

(%)

Net Trade (contribution pps.)

CPI Inflation (end-year)

Source: Fitch

www.fitchratings.com | May 2016

9

Economics

United Kingdom Fitch has revised down slightly its projections for economic growth over the next two years. We now expect real GDP to rise by 1.9% this year, and 2.0% in the two years thereafter (revisions of 0.2 and 0.1 percentage points for this year and next).

The revision to growth this year partly reflects the slowdown in preliminary data for Q1. It also reflects an assumption that uncertainty about the outcome of the referendum on European Union membership on 23 June 2016 is leading households and firms to postpone spending.

Recent soft readings from short-term indicators (mainly business surveys and consumer confidence) for April chime with this assessment.

A vote to leave the EU would weigh on confidence and delay investment decisions. Our base case is that British voters will vote to stay in the EU. This will bring about some bounce back in spending in the second half of this year.

United Kingdom - Contributions to GDP Growth Consumption Net Exports GDP

(%, pp)

3.5

Private consumption will still be the main driver of economic growth, albeit slowing to 2.1% in 2016 from 2.7% in 2015. Investment growth will be weak, given the uncertainty around the referendum discussed above. And import growth will outpace export growth, implying a negative net trade contribution. For 2017 and 2018, we expect investment to pick up and contribute relatively more to growth, while the net trade contribution will be zero.

Inflation averaged zero in 2015, with the inflation rate dragged down by low energy prices. Inflation has picked up slightly and averaged 0.4% in the four months to April. As the impact of low oil prices wears off, we expect inflation to pick up to 1.2% by the end of this year and 1.8% by end-2017. This projection assumes that the Bank of England will raise interest rates once this year, and then start increasing rates slightly faster from 2017.

United Kingdom - Industrial Production and Retail Sales

Investment Other

Retail Sales

4.0 3.0

(% yoy, 3mma)

3.0 2.5 2.0 1.5 1.0 0.5

Manufacturing Output

2.0 1.0 0.0 -1.0

0.0

-2.0

-0.5 2013

2014

2015

2016f

2017f

Jan 14

2018f

Source: ONS, Datastream, Fitch

Jul 14

Jan 15

Jul 15

Jan 16

Source: ONS, Datastream, Fitch

United Kingdom - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

2.1

2.3

1.9

2.0

2.0

Consumer Spending

1.8

2.7

2.1

2.1

2.1

Fixed Investment

3.5

4.1

1.0

3.3

3.4

-0.1

-0.5

-0.3

0.0

-0.1

2.3

0.2

1.2

1.8

1.9

Policy Interest Rate (end-year)

0.50

0.50

0.75

1.25

1.75

Exchange Rate, GBPUSD (end-year)

1.59

1.50

1.36

1.36

1.36

(%)

Net Trade (contribution pps.)

CPI Inflation (end-year)

Source: Fitch

www.fitchratings.com | May 2016

10

Economics

Germany GDP grew by 0.7% qoq in 1Q16 in Germany, 0.2pp higher than the eurozone rate. The combination of sound domestic fundamentals and stimulus from ultra-loose monetary conditions and low energy prices will continue to drive GDP growth until 2018. We forecast GDP growth of 1.8% in 2016 (1.7% in the March GEO), 1.8% in 2017and 1.5% in 2018.

Corporate investment is largely driven by global confidence and the external demand outlook. Therefore, even if the ultra-loose monetary conditions are being better transmitted by the domestic financial sector after the turbulence at the beginning of 2016, a more vigorous pick-up in investment is unlikely.

Growth is expected to exceed long-run potential over the forecast horizon, helped by supportive macro policies. Nevertheless, investment growth will be lacklustre, reflecting the impact of constrained export dynamics on Germany’s highly open economy.

The weakness of the external environment is forecast to last until 2018.

Our forecast for German export growth is 1% in 2016, accelerating somewhat in 2017-2018. As a result, net trade is expected to be a modest drag on growth, accounting for -0.5% of GDP this year, in contrast to its positive contribution in 2014 and 2015.

Household consumption growth is underpinned by the strong labour market. Unemployment is at an historic low, while real disposable income is boosted by very low inflation. The increase in public expenditure due to migration is a moderate fiscal stimulus, but well within the fiscal space provided by domestic and EU fiscal rules.

Germany - Contributions to GDP Growth Consumption Investment GDP

(%, pp)

2.5

Government Spending Net Exports

HICP inflation was -0.3% in April 2016 and core HICP inflation was 0.9%.

Oil price dynamics will be a key driver of a gradual increase in inflation from mid-2016 onwards. We forecast core inflation to remain close to the current level over the forecast horizon, despite strong cyclical economic growth.

Germany and Core HICP Eurozone--Headline GDP Growth (%, pps)

2.0

3.0

1.5

2.0

1.0

1.0

0.5

0.0

0.0

-1.0

-0.5 2014

2015

Difference

HICP

Core

4.0

2016f

2017f

2018f

Source: Datastream, Fitch

-2.0 2006

2008

2010

2012

2014

2016

Source: Eurostat, Fitch

Germany - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

1.5

1.7

1.8

1.8

1.5

Consumer Spending

1.2

1.9

1.8

1.7

1.6

Fixed Investment

2.2

2.2

3.9

2.2

2.0

Net Trade (contribution pps.)

0.5

0.1

-0.5

0.1

0.0

CPI Inflation (end-year)

1.3

0.3

1.3

1.7

1.7

Policy Interest Rate (end-year)

0.59

0.05

0

0

0.25

Exchange Rate, EURUSD (end-year)

1.29

1.09

1.05

1.05

1.05

(%)

Source: Fitch

www.fitchratings.com | May 2016

11

Economics

France GDP grew by 0.5% qoq in 1Q16, its strongest growth rate for a year.

Nevertheless, the yoy growth rate is still subdued at 1.3% in 1Q16. Taking into account base effects from the robust Q1 performance has led us to revise up the 2016 growth forecast to 1.4%, compared to 1.3% in the March GEO. The 2017 forecast is also 1.4%, unchanged since March.

After three years of contraction, Fitch projects modest investment growth, supported by improving profitability and monetary policy.

However, the level of inventories has reached decade-high levels after its persistent positive contribution to growth over 2012-2015 and poses downside risks to the forecast.

The recovery of the French economy will strengthen gradually until 2018, underpinned by monetary stimulus, supportive fiscal measures, low energy prices and improving confidence.

Although France’s domestic demand-driven growth model is somewhat insulated from the global shocks, the weaker external environment is a drag on exports and could indirectly weigh on confidence, delaying the expected recovery in investment.

The strong pick-up in household consumption in 1Q16 followed a decline in the previous quarter, which was driven largely by temporary factors including warmer than usual temperatures and postponed spending following the November Paris attacks.

It underpins our view that household consumption will be the main source of economic growth over the forecast horizon. A gradual labour market recovery is supportive of consumption growth, while low energy prices boost real disposable income despite low nominal wage growth.

France - Contributions to GDP Growth Consumption Investment GDP

(%, pp)

2.0

Inflation, headline HICP, was -0.1% (yoy) in April 2016 and core inflation, HICP excluding energy and unprocessed food, was +0.6%. Oil price dynamics, partly reflecting base effects, will be a key driver of a gradual increase in inflation from mid-2016. In the meantime, we forecast core inflation to remain close to the current level over the forecast horizon and below the eurozone rate.

France - GDP and Consumption Growth

Government Spending Net Exports

(% qoq)

GDP

Consumption

1.5

1.5

1.0

1.0

0.5

0.5

0.0

0.0

-0.5

-0.5

-1.0

-1.0 2014

2015

2016f

2017f

1q14

2018f

Source: Datastream, Fitch

2q14

3q14

4q14

1q15

2q15

3q15

4q15

1q16

Source: Datastream, Fitch

France - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

0.9

1.2

1.4

1.4

1.5

Consumer Spending

0.5

1.4

1.7

1.1

1.3

Fixed Investment

0.2

0.0

1.5

1.8

2.8

Net Trade (contribution pps.)

0.0

-0.2

-0.5

0.3

0.0

CPI Inflation (end-year)

1.2

0.3

1.0

1.6

1.7

Policy Interest Rate (end-year)

0.59

0.05

0

0

0.25

Exchange Rate, EURUSD (end-year)

1.29

1.09

1.05

1.05

1.05

(%)

Source: Fitch

www.fitchratings.com | May 2016

12

Economics

Italy GDP grew by 0.3% qoq in 1Q16 and the yoy growth rate was 1%. While the qoq growth rate increased in 1Q16, it continued to underperform the eurozone. We maintain our growth forecast of 1.0% in 2016 and 1.3% in 2017 and forecast growth at 1.1% in 2018.

Business investment is forecast to remain sluggish due primarily to ample spare capacity after the deep recession and the subdued growth outlook.

Furthermore, the wide-spread weaknesses in the banking sector limit the transmission of the ECB’s monetary easing to the real economy.

The recovery of the Italian economy after a long and deep recession that started in 2015 will remain subdued over the forecast horizon. Due to its structural weakness and rigidities, the economy will benefit only marginally from monetary stimulus and low energy prices. Still, growth exceeding 1% during 2016-2018 would be the best performance of the Italian economy since 2007, albeit weaker than the rest of the eurozone.

Exports could benefit from the ongoing eurozone recovery, while extraeurozone exports will remain sluggish. Net exports are forecast to turn positive in 2017 after a drag in 2015 and 2016.

Fitch expects the recovery to be mainly driven by a modest increase in household consumption. Low energy prices and increasing employment support real income growth. The labour market is slowly recovering, with employment growth at 0.9% in 2015, the fastest rate since 2006. We expect only a gradual decline in unemployment owing to increasing labour force participation. Nominal wage growth is expected to remain very weak.

Italy - Divergence of Italy with Eurozone Italy

Italy - Headline Core HICP Eurozone - GDPand Growth (%, pps)

Eurozone

110 (GDP level, 2006=100)

Inflation, headline HICP, was -0.4% in April 2016 and core HICP inflation was 0.5%, below the corresponding eurozone inflation rates. Oil price dynamics will be a key driver of the increase in inflation from mid-2016, similar to most advanced economies. Core inflation will remain close to its current level and below the eurozone aggregate.

Difference

HICP

Core

5.0 4.0

105

3.0

100

2.0

95

1.0 0.0

90

-1.0

85 1q06 1q07 1q08 1q09 1q10 1q11 1q12 1q13 1q14 1q15 1q16 Source: Datastream, Fitch

-2.0 2006

2008

2010

2012

2014

2016

Source: Eurostat, Fitch

Italy - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

-0.7

0.8

1.0

1.3

1.1

Consumer Spending

-1.0

0.9

1.2

1.1

1.0

Fixed Investment

-4.1

0.8

1.7

1.9

2.0

Net Trade (contribution pps.)

0.9

-0.3

-0.1

0.2

0.1

CPI Inflation (end-year)

1.6

0.1

0.4

1.3

1.3

Policy Interest Rate (end-year)

0.59

0.05

0

0

0.25

Exchange Rate, EURUSD (end-year)

1.29

1.09

1.05

1.05

1.05

(%)

Source: Fitch

www.fitchratings.com | May 2016

13

Economics

Spain GDP growth in 1Q16 remained strong at 0.8% qoq, the same rate as in the previous quarter. The yoy growth was 3.4%, the strongest among larger eurozone members. GDP is forecast to grow by 2.8% in 2016, a 0.2pp upward revision compared to the March GEO, 2.2% in 2017 and 2.0% in 2018.

The buoyant cyclical recovery of the Spanish economy is forecast to slow somewhat over the medium term, as the spare capacity in the economy is gradually absorbed. The strong growth trajectory by eurozone standards is also supported by previous structural reforms, resilient confidence and progress with balance sheet repair.

Private consumption will provide the largest contribution to GDP growth.

Households are benefiting from growing real disposable income, due primarily to low energy prices and a steady fall in unemployment.

Consumer confidence indicators in 2015 rose to their highest level since the financial crisis and so far have held up well in the face of prolonged domestic political uncertainties.

Spain - Contributions to GDP Growth Government Spending Consumption GDP

(%, pp)

Headline HICP inflation was -1.2% in April 2016 and core inflation was 0.7%. While headline inflation has been volatile in recent quarters, core inflation has been more stable since 4Q15. Oil price dynamics, partly reflecting base effects, will be a key driver of a gradual increase in inflation from mid-2016 onwards, although inflation will remain below 0% until 4Q16. Core inflation will gradually increase over the forecast horizon, reflecting the improving cyclical position of the economy with the inflation rate converging to the eurozone path.

Spain - Inflation Gap with Eurozone Eurozone - GDP Growth

Investment Net Exports

Difference (RHS)

3.0 2.0 1.0 0.0 -1.0 2014

2015

2016f

Eurozone

Spain

6 (Headline HICP, % pps)

4.0

Investment is expected to continue growing strongly, albeit at a slower rate than the 6.4% seen in 2015. The combination of an improving economic outlook and easing financing conditions will support business investment over the forecast horizon. Although exports have been resilient in the face of recent external weakness, we forecast exports to slow in 2016 and net trade will make only a minor contribution to growth over the forecast horizon.

2017f

2018f

Source: Datastream, Fitch

4 2 0 -2 2006

2008

2010

2012

2014

2016

Source: Eurostat, Fitch

Spain - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

-0.1

3.2

2.8

2.2

2.0

Consumer Spending

-1.0

3.1

3.0

2.5

2.3

Fixed Investment

-1.3

6.4

4.1

2.5

2.1

Net Trade (contribution pps.)

1.0

-0.4

0.1

0.2

0.2

CPI Inflation (end-year)

1.2

-0.1

0.2

1.8

1.9

Policy Interest Rate (end-year)

0.59

0.05

0

0

0.25

Exchange Rate, EURUSD (end-year)

1.29

1.09

1.05

1.05

1.05

(%)

Source: Fitch

www.fitchratings.com | May 2016

14

Economics

Switzerland Fitch expects Swiss real GDP to grow by 1.2% in 2016 and 1.7% in 2017 as investment and consumption recover from confidence shocks in early 2015 when the franc appreciated sharply against the euro.

Growth picked up in 4Q15 to 0.4% qoq (0.2pp higher than estimated in the March GEO), supported by private consumption and public expenditure. Although investments in construction remained stable, equipment investment declined, and net exports made a moderate positive contribution to growth. Real GDP rose by 0.9% over 2015 and is projected to further recover over the forecast period.

The forecasts for 2016-2017 remain unchanged since the March GEO. Private and public consumption will remain the key drivers of growth, supported by population growth and increased purchasing power on the

Switzerland - Contributions to GDP Growth Consumption Investment Residual

(%, pp)

4.5

back of ongoing deflation. The Purchasing Managers’ Index (PMI) and the Economic Barometer from the Swiss Economic Institute (KOF) improved in February, showing positive signals for Swiss industry. However, real retail sales declined in March and consumer confidence remained low in April.

Real exports are also set to have decreased during 1Q16 and we therefore expect the recovery to remain modest over the coming quarters before picking up towards the end of the year and in 2017.

The Swiss National Bank (SNB) revised its inflation forecast for 2016 to -0.8%, compared to -0.5% in December and to 0.1% for 2017 (0.2pp lower than estimated in December) as subdued oil prices further weigh on inflation in the short term. We expect the interest rate on sight deposits with the central bank to remain unchanged at -0.75% until 2017 before moving to -0.5% in 2018, when positive inflation rates re-emerge.

Switzerland - Inflation

Government spending Net Exports GDP

Producer and Import Price Index

(% yoy)

Consumer Price Index

1.0 0.0

3.0

-1.0

1.5

-2.0

0.0

-3.0

-1.5

-4.0

-3.0 2013

2014

2015

2016f

2017f

2018f

Source: SECO, Datastream, Fitch

-5.0 Jan 14

Jul 14

Jan 15

Jul 15

Jan 16

Source: FCO, Fitch

Switzerland - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

1.5

0.9

1.2

1.7

1.7

Consumer Spending

1.6

1.0

1.9

2.3

1.8

Fixed Investment

2.4

1.4

2.2

2.7

2.2

Net Trade (contribution pps.)

0.7

0.7

0.8

-0.5

-0.2

-0.3

-1.4

-0.5

0.3

0.5

-0.03

-0.75

-0.75

-0.75

-0.50

0.93

1.00

0.99

0.99

0.99

(%)

CPI Inflation (end-year) Policy Interest Rate (end-year) Exchange Rate, USDCHF (end-year) Source: Fitch

www.fitchratings.com | May 2016

15

Economics

Australia Fitch expects real GDP growth of 2.6% in 2016, supported by growing iron ore and liquefied natural gas production capacity, as well as continued robust consumption growth. Fitch expects growth to pick up to 2.9% and 2.8% in 2017 and 2018, respectively, as the drag from falling mining investment fades.

The Reserve Bank of Australia (RBA) cut the Overnight Call Rate by 25bps to 1.75% in May, the lowest on record. The decision came after 1Q16 inflation came in much lower than markets expected, at 1.3% yoy compared to consensus estimates of 1.8%. The RBA subsequently revised down their inflation forecast for end-2016, from 2%-3% to 1%2%. Fitch now expects a further rate cut before the end of 2016.

Fitch has not changed its growth assumptions, despite a looser monetary policy environment than we previously expected. Weaker global demand is likely to offset the benefits from the monetary stimulus.

Australia - Inflation

Signs of moderation in the growth of house prices have helped ease the RBA’s concerns over financial stability risks emanating from the property market. According to data produced by CoreLogic RP Data, median home values grew by 7.4% yoy in April 2016, down from a peak of 11.1% in September 2015. Tighter lending standards, particularly for investor and interest-only mortgage loans, is likely to have contributed to the cooler housing market.

The Federal Budget for FY17 was marginally growth supportive, with a slightly slower path of consolidation than expected and a modest increase in infrastructure spending.

Australia - Iron Ore Prices and Exchange Rate

House Price Inflation (LHS)

CPI (RHS)

Iron Ore Prices

(%)

Exchange Rate (RHS)

4.2

210

85

12

3.6

180

80

9

3.0

150

75

6

2.4

120

70

3

1.8

90

65

0

1.2

60

60

-3

0.6

30

55

-6

0.0

0

2009

2010

2011

2012

2013

2014

2015

(US$/mt)

15

2016

Source: RPCorelogic, Australian Bureau of Statistics, Datastream

(Trade Weighted Index)

(%)

The trade-weighted exchange rate index appreciated over 3% from January to April 2016, coinciding with a strong recovery in iron ore prices. The stronger Australian dollar could put pressure on export competitiveness if sustained. However, the AUD is still over 10% weaker than two years ago on a trade-weighted basis, and Fitch expects Australia’s exporters to continue benefiting from the lingering effects.

50 2011

2012

2013

2014

2015

2016

Source: Quandl, Reserve Bank of Australia

Australia - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

2.7

2.5

2.6

2.9

2.8

Consumer Spending

2.6

2.8

2.6

2.5

2.6

Fixed Investment

1.6

-3.8

-2.2

2.4

2.6

Net Trade (contribution pps.)

0.4

1.1

1.1

0.4

0.2

CPI Inflation (end-year)

2.3

2.0

2.2

2.6

2.5

Policy Interest Rate (end-year)

3.14

2.00

1.50

1.50

2.00

Exchange Rate, USDAUD (end-year)

1.08

1.38

1.34

1.34

1.34

(%)

Source: Fitch

www.fitchratings.com | May 2016

16

Economics

Canada Canada continues to suffer the impact of the energy price shock. A further steep contraction in energy investment in 2016 will continue to depress activity, potential growth and employment in commodity-rich provinces, but the impact will lessen. The wildfire in oil-producing areas of Alberta caused no lasting damage to oil production facilities and will have a transitory impact. Fiscal and monetary policy loosening and greater non-oil export competitiveness will also boost growth.

We have revised up our growth forecast to 1.8% in 2016 and 2.3% in 2017. Based on monthly data, particularly a very strong January GDP reading (+0.6% m/m), we expect that real GDP growth strengthened to an annualised pace of over 3% in 1Q16, before decelerating into Q2. The expansion was led by service sectors, with the tradeable sector lagging.

Fiscal stimulus also reduces the likelihood that the Bank of Canada will cut interest rates further. The Bank of Canada kept its policy rate at 0.5% at its April meeting, and upgraded its growth forecast, citing the fiscal stimulus and a more constructive view of global growth.

We believe that the Bank of Canada favours a relatively weak currency to help rebalance the economy away from the energy sector. We maintain our exchange rate forecast for end-year at CAD1.32 per US dollar, implying a partial unwinding of the recent appreciation.

We maintain our call for no change in policy rates in 2016 and 2017.

Inflationary pressures remain low, with headline CPI at 1.3% in March and core inflation at 2.1%.

In March, the government unveiled its FY15-16 budget, which provides a fiscal stimulus of CAD25bn (1.3% of GDP), divided between current spending aimed at boosting the incomes of low- and middle-income households and infrastructure spending.

Canada - Investment - Oil and Gas Extraction

Canada - Exports and Exchange Rate

4

20

2

10

0

0

-2

-10

-4

-20

-6

-30

-8

-40 -50

-10

1.5

12

1.4

8

1.3

4

1.2

0

1.1

-4

1.0 0.9

-8 2012

1q14 2q14 3q14 4q14 1q15 2q15 3q15 4q15 Source: CANSIM, Fitch

USDCAD (RHS)

16

(% yoy)

(Nominal growth, % yoy)

Export Volume 30

(Nominal growth, % yoy)

Capital Spending - Oil & Gas Extraction (RHS)

6

(USDCAD)

Gross Fixed Capital Formation

2013

2014

2015

2016

Source: CANSIM, Datastream, Fitch

Canada - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

2.2

1.2

1.8

2.3

2.2

Consumer Spending

2.2

1.9

1.7

1.8

1.6

Fixed Investment

1.3

-3.6

-1.7

4.0

4.1

Net Trade (contribution pps.)

0.3

0.9

1.3

-0.3

-0.2

CPI Inflation (end-year)

1.7

1.6

1.8

2.0

2.0

Policy Interest Rate (end-year)

0.93

0.50

0.50

0.50

1.50

Exchange Rate, USDCAD (end-year)

1.08

1.37

1.32

1.32

1.32

(%)

Source: Fitch

www.fitchratings.com | May 2016

17

Economics

Brazil Fitch has revised its forecasts for Brazil’s growth slightly to -3.8% and 0.5% in 2016 and 2017, respectively, from -3.5% and 0.7% in the last GEO. The contraction in 2016 continues to reflect the collapse in domestic demand, led by the continued steep contraction in investment due to depressed domestic confidence, the difficult political environment and external headwinds. Low consumer confidence, rising unemployment, contracting real wages and subdued credit growth are weighing on consumption. Fitch expects net trade to continue making a large positive contribution to growth.

greatly depend on the credibility of the fiscal adjustment process as negative perceptions about fiscal policy and burgeoning public debt burden have sapped domestic confidence.

The scenario of modest growth in 2017 assumes that growth stabilises on a sequential basis by the end of this year and positive sequential growth resumes in 2017. Easing external headwinds, interest rate cuts and improved investor sentiment from reduced political and policy uncertainties in the aftermath of the impeachment proceedings should help GDP stabilize next year. Continuation of these trends could lead growth to reach nearly 2% in 2018, especially against a background of two consecutive years of steep recession. The pace of the recovery will

Fitch expects the central bank to maintain the Selic rate at 14.25% this year and reduce it next year. In the last Copom meeting, the central bank signalled that interest rates are unlikely to be reduced in the near term to facilitate convergence with the inflation target. However, prospects for lower interest rates could grow in 2H16 if inflation and inflation expectations continue to decline and progress is made on improving the fiscal situation.

Brazil - Retail Sales & Consumer Confidence Retail Sales

Inflation has begun to decline after peaking at 10.7% in January 2016 with IPCA inflation reaching 9.28% in April. Despite the deep contraction, a faster disinflation is being prevented by the backward indexation of prices, as well as above-target inflation expectations, although the latter have been declining.

Brazil - Inflation Expectations

Consumer Confidence Index (RHS) 120

8.0

10

110

7.5

5

100

6.5

0

90

-5

80

-10

70

4.5

-15

60

4.0 Dec 15

2012

2013

2014

2015

2016

Source: IBGE, Fundacao Getulio Vargas, Datastream

2017

2018

Target

7.0 (Index)

(% yoy, SA)

15

2011

2016

(% yoy)

6.0 5.5 5.0

Jan 16

Feb 16

Mar 16

Apr 16

May 16

Source: BCB, Fitch

Brazil - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

1.0

-3.8

-3.8

0.5

1.7

Consumer Spending

1.8

-4.0

-3.3

0.7

1.7

-1.1

-14.1

-11.5

0.5

2.9

Net Trade (contribution pps.)

0.3

2.9

1.4

-0.1

-0.1

CPI Inflation (end-year)

6.7

10.7

7.0

5.8

5.6

10.66

14.25

14.25

13.00

11.50

2.30

3.88

3.90

4.10

4.10

(%)

Fixed Investment

Policy Interest Rate (end-year) Exchange Rate, USDBRL (end-year) Source: Fitch

www.fitchratings.com | May 2016

18

Economics

Russia Signs of stabilisation are starting to emerge in Russia. GDP shrank by substantially less than expected in the year to 1Q16 (at -1.2%), implying a small rise in sequential qoq GDP. The economy has been rebalancing aggressively toward production and away from consumption as households continue to bear the brunt of the adjustment to the termsof-trade shock. High frequency data suggests that consumers remain under pressure, with retail sales continuing to fall, while unemployment has jumped up slightly. But industrial production is faring better.

Fitch still expects the economy to shrink by 0.7% in 2016, but this has been revised from a forecast of -1.5% in March. Consumer spending is expected to bottom out while tight fiscal policy and weak domestic demand will see investment spending contract more sharply.

Inflationary pressures are expected to ease during the remainder of the year amid weak domestic demand, as the impact of the sharp exchange rate depreciation fades. This will provide the Central Bank of Russia

Fitch’s concerns about Russia’s capacity to finance substantial foreign capital outflows combined with scheduled debt repayments has abated, with the current account surplus forecast to cover expected capital outflows in 2016.

Delays in announcing a revised 2016 budget, the lack of a medium-term fiscal framework and likely challenges in executing fiscal reforms due to the tight electoral calendar have raised fiscal risks. The government wants to keep the budget deficit below 3% of GDP in 2016, although Fitch believes this is unlikely with our current oil price assumption of USD35 per barrel in 2016.

Russia - Labour Market

Industrial Production

Real Wages

PMI Manufacturing

4

52

12

2

51

6

-2

49

-4

48

-6

47 Jan 13

Jul 13

Jan 14

Jul 14

Jan 15

Jul 15

Jan 16

Source: Rosstat, Markit, Datastream

(% yoy)

50

8

9 (Index)

0

Unemployment Rate (RHS)

7

3 6

0 -3

5

-6

(% of labour force)

Russia - Industrial Production

(% yoy, SA)

(CBR) more scope to cut rates, although the pace of cuts is likely to be gradual as the Bank seeks to build credibility around its inflation target of 4% by end-2017. The exchange rate will remain the key driver of inflation, in turn linked to oil price movements. Lower rates would also be supportive of an improved growth outlook.

-9 -12 Jan 11

4 Jan 12

Jan 13

Jan 14

Jan 15

Jan 16

Source: CBR, Rosstat, Datastream

Russia - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

1.2

-3.7

-0.7

1.3

2.0

Consumer Spending

2.1

-9.6

0.2

0.9

1.9

Fixed Investment

1.4

-7.6

-3.3

2.0

4.5

Net Trade (contribution pps.)

0.6

6.2

0.4

0.3

0.1

CPI Inflation (end-year)

8.7

12.9

8.2

7.1

6.0

7.39

11.00

10.00

8.50

8.00

38.44

70.07

68.73

65.00

60.00

(%)

Policy Interest Rate (end-year) Exchange Rate, USDRUB (end-year) Source: Fitch

www.fitchratings.com | May 2016

19

Economics

India Fitch expects India’s real GDP growth to rise to 8.0% by FY18-19, from 7.9% in FY17-18 and 7.7% in FY16-17.

Gradual implementation of the structural reform agenda, which continues to broaden, is expected to contribute to higher growth.

Passing of the new Bankruptcy Code in both houses of Parliament in May 2016 shows that implementation of big ticket reforms is possible in India, even though reforms related to land acquisition and a Goods and Services Tax have not passed thus far.

Higher real disposable income is expected to contribute to faster GDP growth. In rural areas, purchasing power will be supported by above-average rainfall from the monsoon, as expected by the India Meteorological Department, after two years of below-average rainfall.

Urban consumption is likely to be supported by a hike in civil servant wages, after the Seventh Pay Commission recommended a wage rise of almost 24%.

India - Inflation (% yoy)

A decisive industrial recovery remains elusive, however. Industrial production growth dropped to 0.1% yoy in March 2016 from 2.0% in February. At the same time, cement sales and hiring activity have been up in recent months.

The Reserve Bank of India’s policy rate cuts of 150bp in total since the beginning of 2015 are likely to feed through to higher GDP growth, even though monetary transmission is impaired by relatively weak banking sector health.

CPI came in at 5.4% in April 2016, substantially higher than the consensus forecast of 5.0%. Food price inflation rose to 6.2% yoy from 5.2% in March 2016 and fuel prices also increased in line with international price developments. WPI became positive again in April (0.3% yoy) after 17 months of deflation. Stronger inflationary pressures than expected make further policy rate cuts unlikely in the very near term.

India - Vehicle Production

Consumer Price Index

Wholesale Price Index

15 10 5 0 -5 -10

Passenger

('000)

Commercial (RHS)

340

105

320

95

300

85

280

75

260

65

240

55

220

45 35

200 Jan 13

Jul 13

Jan 14

Jul 14

Jan 15

Jul 15

Jan 16

Source: CEIC, Datastream, Fitch

('000)

2013

2014

2014

2015

2016

Source: CEIC, Society of Indian Automobile Manufacturers, Fitch

India - Forecast Summary Ann. Av.2011-15

FY15-16e

FY16-17f

FY17-18f

FY18-19f

GDP

6.5

7.5

7.7

7.9

8.0

Consumer Spending

6.4

5.8

7.1

8.5

8.6

Fixed Investment

4.5

5.1

8.1

8.3

8.6

Net Trade (contribution pps.)

0.4

-0.1

0.0

0.1

0.1

CPI Inflation (end-cal. year)

8.0

5.6

5.4

5.7

5.5

Policy Interest Rate (end-cal. year)

7.69

6.75

6.50

6.25

6.25

Exchange Rate, USDINR (end-cal. year)

56.78

66.56

68.20

68.20

68.20

(%) FY starting April

Source: Fitch

www.fitchratings.com | May 2016

20

Economics

Korea Fitch expects Korea’s real GDP growth to slightly increase to 2.7% in 2016 and 3.0% in 2017, from 2.6% in 2015. Real GDP grew by 0.4% qoq (2.7% yoy) in 1Q16, supported by construction and the contribution of net exports, with imports falling even faster than exports.

Korea’s export performance is expected to remain weak in the context of slow world trade growth. The economy is very open and continues to be heavily dependent on global developments, including the China slowdown.

Consumer and business sentiment have both improved in recent months, but private consumption decreased by 0.3% qoq in 1Q16, the worst in almost two years. Restructuring of ailing industries, such as shipping and shipbuilding, may become a drag on growth. These sectors struggle in the current international environment of low oil prices.

Korea - Economic Surveys (Index)

Consumer Sentiment Index (RHS)

110

The Bank of Korea (BoK) has cut its policy rate by 25bp four times since August 2014, most recently in June 2015, to 1.5%. There is potential for further cuts from an inflation perspective, but the BoK generally cites high household debt as a concern in its monetary-policy statements.

Expectations of a rate cut are increasingly priced into the market and Fitch expects one more cut of 25bp later in 2016.

The government may choose to support the economy through another supplementary budget. Government consumption grew 1.3% qoq in 1Q16.

Korea - Inflation and Inflation Target

Business Survey Index

(Index)

Headline inflation averaged 1% in the first four months of 2016 and continued to lie well below the formal inflation target of 2%.

113

7

105

110

6

100

107

95

104

90

101

85

98

1

95

0

80 2011

2012

2013

2014

2015

2016

Source: CEIC, BoK, FKI, Datastream, Fitch

Consumer Price Index Inflation Target: Upper Limit Inflation Target: Lower Limit

(% yoy)

5 4 3 2

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: CEIC, Bank of Korea, Datastream, Fitch

Korea - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

3.0

2.6

2.7

3.0

2.6

Consumer Spending

2.1

2.2

1.9

2.4

2.5

Fixed Investment

2.2

3.8

3.5

3.3

2.7

Net Trade (contribution pps.)

0.6

-1.2

0.2

0.3

0.1

CPI Inflation (end-year)

1.9

1.3

1.5

1.9

2.0

2.55

1.50

1.25

1.25

1.25

1103

1173

1180

1180

1180

(%)

Policy Interest Rate (end-year) Exchange Rate, USDKRW (end-year) Source: Fitch

www.fitchratings.com | May 2016

21

Economics

Indonesia Fitch expects real GDP growth to gradually rise to around 5.5% over the next few years, from recent rates of just below 5%. A stepped-up structural reform effort since September 2015, aimed at improving purchasing power and the business environment, as well as a pick-up in public capital expenditure should start to have an impact on growth.

GDP growth of 4.9% in 1Q16 yoy was slightly below the 5.1% consensus forecast. Private consumption growth remained steady at 4.9% yoy. The contribution of net exports to growth remains negative (-90bp in 1Q16), given Indonesia’s large dependence on commodities for its exports and a drop in manufacturing exports (6.7% yoy).

Fixed capital formation grew by 5.6% yoy and seems mainly related to public capital expenditure, which is central to the government’s strategy to spur growth and is expected to rise further in the course of the year.

Indonesia - Contributions to GDP Growth (% pp)

10

Consumption Government Spending Residual

Limited fiscal space resulting from a very low government revenue base makes a substantial push in infrastructure spending unlikely in the near term, although SOEs are likely to contribute as well.

Monetary policy easing by Bank Indonesia (BI) is also expected to contribute to the gradual pick-up in growth. The benchmark BI rate has been cut by 75bp and the RRR by 100bp since the start of the year.

Consumer price inflation fell to 3.6% in April 2016 and has been within BI’s target range of 3%-5% since November 2015, after the base effect of an administrative fuel price hike ended. Fitch expects inflation to remain within the target in the near term, after a recent cut in fuel prices, although upside risks continue to be related to food and oil.

Indonesia - Inflation

Investments Net Exports GDP

Headline

(%)

Core

10 8

8 6

6

4 2

4

0

Inflation Target Range

2

-2 -4 1q11

1q12

1q13

1q14

1q15

1q16

Source: CEIC , Central Bureau of Statistics, Fitch

0 Jan 13

Jul 13

Jan 14

Jul 14

Jan 15

Jul 15

Jan 16

Source: CEIC, Bank Indonesia, Fitch

Indonesia - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

5.5

4.8

5.1

5.5

5.7

Consumer Spending

5.2

4.8

5.3

5.4

5.4

Fixed Investment

6.5

5.1

5.6

6.2

6.8

Net Trade (contribution pps.)

0.0

0.8

-0.1

0.1

0.1

CPI Inflation (end-year)

5.7

3.4

4.7

5.2

5.2

6.78

7.50

6.50

6.50

6.50

10765

13835

13800

13800

13800

(%)

Policy Interest Rate (end-year) Exchange Rate, USDIDR (end-year) Source: Fitch

www.fitchratings.com | May 2016

22

Economics

Mexico Fitch has maintained Mexico’s 2016 growth forecast of 2.5%. The preliminary 1Q16 growth estimate of 0.8% (qoq) was slightly better than expected. However, the sluggish performance of the US (particularly of the industrial sector to which Mexico is closely tied) is likely to weigh on Mexico’s growth performance in 2016. During the first quarter of 2016, non-oil exports shrunk by 2.9% in nominal terms. The main driver of growth will be domestic demand, especially consumption.

The improvement in the labour market, a pick-up in credit growth and continued healthy growth in overseas workers’ remittances should be supportive for consumption.

Fitch expects Mexican growth to pick up in 2017 as it benefits from the US recovery, a competitive currency and higher oil prices. The agency has changed its 2017 growth forecast slightly to 2.9% from 3% previously. The continued fiscal adjustment that will be necessary to comply with the fiscal consolidation goals will likely represent a drag on growth next year.

Mexico - Labour Market and Consumption

The central bank (Banxico) increased its benchmark interest rate by 50 bps in February to consolidate the convergence of inflation with the 3%+/-1% target and has been on hold since then. In recent monetary policy meetings, Banxico has been stressing the importance of exchange rate movements and its potential impact on domestic inflation, Mexico’s monetary stance relative to the US and the evolution of the output gap in determining the path of monetary policy. Fitch forecasts assume that Banxico will continue to tighten policy in line with Fed hikes in 2016 and 2017, with the benchmark rate reaching 5% by end-2017.

Mexico - Inflation by Component

Formal Employment

6

Telecom Gov Administered Energy

5.6

Electricity Headline (RHS) 5

20

5.2

2

4.8

0

4.4

4

10 (% yoy)

4

(% of labour force)

(% yoy)

15 5

3

0

2

-5 -10

1

-15 -2

4.0 2013

2014

2015

-20

2016

Source: INEGI, Secretary of Labor and Social Security, Fitch

(% yoy)

Retail Sales Unemployment Rate (RHS)

Mexico’s inflation has remained at low levels despite significant peso depreciation. Fitch expects inflation to remain around 3% in 2016 and 2017. Inflation reached 2.5% in April, close to the historical low of 2.1% in December 2015. Limited FX pass-through, the negative output gap and well-anchored inflation expectations should continue to keep inflation under control.

0 Jan 13

Jul 13

Jan 14

Jul 14

Jan 15

Jul 15

Jan 16

Source: INEGI, Fitch

Mexico - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

2.8

2.5

2.5

2.9

3.3

Consumer Spending

3.4

3.2

3.2

3.1

3.4

Fixed Investment

3.5

3.8

2.3

3.9

3.8

Net Trade (contribution pps.)

0.3

1.3

-0.1

-0.2

0.0

CPI Inflation (end-year)

3.6

2.1

3.2

3.2

3.0

Policy Interest Rate (end-year)

3.83

3.25

4.25

5.00

5.50

Exchange Rate, USDMXN (end-year)

13.5

17.1

18.0

17.5

17.0

(%)

Source: Fitch

www.fitchratings.com | May 2016

23

Economics

Poland Fitch expects growth to slow to 3.2% in 2016 after 3.6% in 2015; the slowdown reflects the marked deceleration in 1Q16 (-0.1% qoq after +1.3% in 4Q15), which suggests the end of the 2007-2013 EU fund cycle had a marked impact on investment at the start of 2016. Domestic demand will benefit from favourable financing conditions, the fall in unemployment (6.8% in March 2016 from 7.8% a year ago), and low inflation (HIPC at -0.4% yoy in March). An increase in transfers to families from April will add 0.9% of GDP to household incomes in 2016, a significant boost to consumption.

Fitch expects growth will be 3.5% in 2017 and 2018. Private consumption will be the main driver. The gradual start of the new EU fund cycle (20142020) should also support public investment. Domestic demand will also benefit from a more expansionist fiscal stance (although the extent of the fiscal relaxation is still uncertain).

Poland - GDP Growth

Fitch expects the main monetary policy rate to remain stable in 2016 despite falling prices. Communication by the newly appointed members of the Monetary Policy Committee suggest limited appetite for rate cuts, with current deflation linked, in their view, mainly to external factors.

Fitch forecasts the policy rate will gradually increase from 2017 as inflation recovers towards the 2.5% central banktarget.

Poland - Unemployment

Quarterly GDP Growth

(% qoq)

In Fitch’s view, the main risk to the outlook is weaker-than-expected external demand that would affect Poland’s exports. A new proposal to convert FX mortgage (PLN167bn or 17% of total loans to the private sector) into local currency is due in June and could potentially affect banks’ abilities to lend and the outlook for GDP growth. Deterioration in the relationship with key economic partners (including the EU) also raises risks to the investment and the macro outlook.

Unemployment rate

(% yoy)

Annual GDP Growth (RHS)

5

11 10

1.2

4

0.9

3

0.6

2

0.3

1

0.0

0

-0.3

-1 1q13

3q13

1q14

3q14

1q15

3q15

(% of labour force)

1.5

9 8 7 6 5

1q16

Source: Poland Central Statistical Office, Datastream, Fitch

2008-2014 average

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: Eurostat, Datastream, Fitch

Poland - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

3.0

3.6

3.2

3.5

3.5

Consumer Spending

1.9

3.0

3.2

3.2

3.0

Fixed Investment

4.3

5.8

4.5

4.5

4.3

Net Trade (contribution pps.)

0.7

0.3

0.0

0.1

0.2

CPI Inflation (end-year)

1.7

-0.7

0.7

1.8

2.5

Policy Interest Rate (end-year)

3.15

1.50

1.50

2.00

3.00

Exchange Rate, USDPLN (end-year)

3.26

3.94

3.90

3.80

3.70

(%)

Source: Fitch

www.fitchratings.com | May 2016

24

Economics

Turkey High frequency data points to solid growth so far in 2016. A 30% increase in the minimum wage and spending from the large and growing migrant community should support consumption, the main growth driver. Lower tourism receipts and a tough environment for exports mean net trade will be a drag.

Fitch expects growth to remain around 3.5% p.a. to 2018. Reforms would be required to improve the pace and composition of growth on a sustainable basis. The government’s policy programme tackles structural weaknesses, but implementation has lagged in recent years and commitment to the reform programme has still to be demonstrated.

Headline inflation dropped to 6.6% in April, from 9.6% in January due almost entirely to lower food prices, resulting from a good harvest, price controls and tax cuts. Core inflation has changed little so far this year and stood at 9.4% in April. Fitch anticipates a moderation in core inflation as the impact of the fall in the lira 2015 fades. Headline inflation is expected to pick up in the coming months due to seasonal pressures.

Turkey - Retail Sales & Industrial Production Retail Sales

The Central Bank has begun cutting the top rate of the interest rate corridor as part of a planned simplification of policy. The effective funding rate has also fallen despite core inflation remaining above the bank’s target. A new Central Bank governor has been appointed from within the institution, but concerns over the risk of greater political pressure on monetary policy remain. Fitch assumes a flat policy rate in the presence of opposing pressures from politicians and stubbornly high core inflation.

Another round of political tension, resulting in the resignation of the Prime Minister and the potential formation of a new government, hit the lira in early-May. Ongoing political and geopolitical stresses, together with a large external financing requirement, make the lira vulnerable to shifts in investor sentiment. Nonetheless, Fitch assumes only a modest deprecation to end-2018, given the extent of the fall in 2015.

Turkey - Inflation

Industrial Production

10

11

8

10

6

9

4

8

2

7

0

6

(% yoy, 3mma)

Headline

(% yoy)

Core

5

-2 2013

2014

2015

2016

Source: TurkStat, Datastream, Fitch

Jan 13

Jul 13

Jan 14

Jul 14

Jan 15

Jul 15

Jan 16

Source: TurkStat, Datastream, Fitch

Turkey - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

4.4

4.0

3.5

3.6

3.5

Consumer Spending

3.7

4.5

3.9

3.8

3.6

Fixed Investment

4.4

3.6

2.1

3.2

2.8

Net Trade (contribution pps.)

0.4

-0.3

-1.0

0.0

0.0

CPI Inflation (end-year)

7.9

8.8

8.2

7.7

7.5

Policy Interest Rate (end-year)

6.61

7.50

7.50

7.50

7.50

Exchange Rate, USDTRY (end-year)

2.06

2.92

2.91

3.06

3.23

(%)

Source: Fitch

www.fitchratings.com | May 2016

25

Economics

South Africa Fitch expects South Africa’s GDP growth to slow to just 0.7% in 2016, after an already lacklustre 1.3% in 2015, and the risk of a recession this year is significant. There will only be a slow recovery to 1.5% in 2017 and 2.2% in 2018.

Consumer demand is still supporting growth, but rising financing costs, higher inflation and falling employment will constrain this pillar of support. The depreciation of the rand will help competitiveness but concerns related to high wage growth remain.

The sharp fall in commodity prices paired with high wage growth is leading to substantial capacity cuts in the mining industry, while a severe drought is weighing on agricultural production. More broadly, the uncertain political climate ahead of local elections in August is weighing on companies’ willingness to invest.

Inflation has remained high, reflecting currency depreciation, drought and administrative price increases. In response, the South African Reserve Bank (SARB) has increased its policy rates, from 6.25% at end2015 to 7% in March. Despite weak growth, SARB is expected to raise its rates to a cyclical peak of 7.5% on the back of high inflation rates before cutting them in 2018, as inflation settles more comfortably inside the inflation target range of 3%-6%.

Electricity shortages, which had severely affected growth last year, will remain a constraint on growth, although improved maintenance management and weaker GDP growth has already led to an end of power black-outs. Some capacity from renewables has been added, but further capacity from new power stations at Medupi and Kusile will only come on line from 2018.

South Africa - Manufacturing Survey Results

South Africa - Inflation and Monetary Policy

General Climate

(%)

100

Policy Interest Rate

(%)

Political Climate as Business Constraint

Inflation Rate

8 7

80

6 5

60

4

40

Inflation Target Range

3 2

20

1 0

0 1996

2000

2004

2008

2012

2016

2010

2011

2012

2013

2014

2015

2016

Source: SARB, Statistics SA, Datastream, Fitch

Source: BER, Datastream, Fitch

South Africa - Forecast Summary Ann. Av.2011-15

2015

2016f

2017f

2018f

GDP

2.1

1.3

0.7

1.5

2.2

Consumer Spending

2.8

1.6

1.5

1.9

2.1

Fixed Investment

3.6

1.4

1.2

1.6

2.1

-0.2

0.9

-0.6

-0.1

0.3

5.4

5.2

6.6

6.2

5.8

5.46

6.25

7.50

7.50

7.00

9.7

15.0

15.2

15.7

16.3

(%)

Net Trade (contribution pps.)

CPI Inflation (end-year) Policy Interest Rate (end-year) Exchange Rate, USDZAR (end-year) Source: Fitch

www.fitchratings.com | May 2016

26

Economics

Appendix 1: Quarterly GDP Q/Q Q3 15

Q4 15

Q1 16

Q2 16

Q3 16

Q4 16

Q1 17

Q2 17

Q3 17

Q4 17

US

0.5

0.3

0.1

0.5

0.6

0.6

0.5

0.5

0.4

0.6

Euro area

0.3

0.3

0.5

0.4

0.4

0.3

0.5

0.4

0.4

0.4

China

1.8

1.5

1.1

1.5

1.5

1.6

1.5

1.6

1.6

1.5

Japan

0.4

-0.4

0.4

0.3

0.4

0.3

1.3

-2.1

0.6

0.4

UK

0.4

0.6

0.4

0.2

0.6

0.5

0.5

0.4

0.5

0.5

Germany

0.3

0.3

0.7

0.4

0.5

0.5

0.4

0.4

0.4

0.4

France

0.4

0.3

0.5

0.3

0.3

0.3

0.4

0.4

0.4

0.4

Italy

0.2

0.1

0.3

0.3

0.3

0.3

0.3

0.4

0.4

0.3

Spain

0.8

0.8

0.8

0.5

0.6

0.5

0.6

0.6

0.5

0.5

-0.1

0.4

0.4

0.2

0.3

0.6

0.4

0.5

0.4

0.4

Australia

1.1

0.6

0.6

0.7

0.5

0.7

0.7

0.8

0.8

0.8

Canada

0.6

0.2

0.9

0.3

0.4

0.4

0.7

0.7

0.6

0.6

Brazil

-1.7

-1.4

-0.9

-0.6

-0.2

0.1

0.2

0.3

0.4

0.4

Russia

-0.6

-0.8

0.3

0.2

0.1

0.2

0.4

0.4

0.5

0.4

India

2.0

1.1

1.9

2.0

2.0

2.2

1.9

1.9

1.9

1.9

Korea

1.2

0.7

0.4

0.7

0.8

0.8

0.7

0.8

0.8

0.6

Mexico

0.8

0.5

0.8

0.6

0.5

0.4

0.8

0.9

0.9

0.8

Indonesia

1.2

1.3

1.1

1.3

1.4

1.3

1.3

1.3

1.5

1.4

Turkey

1.2

0.7

0.7

0.7

0.9

1.0

0.8

0.8

0.9

0.9

Poland

0.8

1.3

-0.1

1.4

1.0

0.9

0.8

0.8

0.9

0.7

South Africa

0.2

0.2

0.3

0.3

0.2

0.2

0.4

0.5

0.6

0.6

Developed a

0.5

0.3

0.4

0.4

0.5

0.5

0.6

0.2

0.5

0.5

Emerging b

1.0

0.8

0.9

1.1

1.1

1.2

1.2

1.3

1.3

1.2

World

0.6

0.5

0.5

0.6

0.7

0.7

0.8

0.6

0.8

0.8

(%)

Switzerland

c

a US, Japan, France, Germany, Italy, Spain, UK, Canada, Australia and Switzerland. b Brazil, Russia, India, China, South Africa, Korea, Mexico, Indonesia, Poland and Turkey. c ‘Fitch 20’ countries weighted by nominal GDP in USD at market exchange rates (3 year average) Source: Fitch

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Economics

Appendix 2: Quarterly GDP Y/Y Q3 15

Q4 15

Q1 16

Q2 16

Q3 16

Q4 16

Q1 17

Q2 17

Q3 17

Q4 17

US

2.1

2.0

1.9

1.5

1.6

1.9

2.2

2.2

2.0

2.0

Euro area

1.6

1.6

1.5

1.5

1.6

1.6

1.6

1.6

1.6

1.6

China

6.9

6.8

6.7

6.5

6.2

6.0

6.2

6.3

6.4

6.4

Japan

1.8

0.9

0.0

0.7

0.6

1.4

2.3

-0.2

0.0

0.1

UK

2.2

2.1

2.1

1.7

1.9

1.8

1.8

2.0

2.0

2.0

Germany

1.7

1.3

1.6

1.6

1.9

2.2

1.9

1.9

1.7

1.6

France

1.2

1.4

1.3

1.6

1.4

1.4

1.3

1.4

1.5

1.5

Italy

0.8

1.1

1.0

0.9

1.0

1.2

1.2

1.3

1.3

1.4

Spain

3.4

3.5

3.4

2.9

2.6

2.3

2.1

2.2

2.2

2.3

Switzerland

0.6

0.3

1.0

0.9

1.4

1.6

1.6

1.8

1.9

1.7

Australia

2.7

3.0

2.7

3.0

2.4

2.5

2.6

2.7

3.0

3.2

Canada

1.1

0.5

1.6

2.0

1.8

2.0

1.8

2.2

2.4

2.7

Brazil

-4.5

-6.0

-6.0

-4.6

-3.1

-1.5

-0.4

0.4

1.0

1.2

Russia

-3.7

-3.8

-1.2

-0.9

-0.2

0.8

0.9

1.1

1.5

1.6

India

7.7

7.3

7.6

7.1

7.2

8.3

8.2

8.2

8.0

7.7

Korea

2.8

3.1

2.7

3.0

2.6

2.6

3.0

3.1

3.0

2.9

Mexico

2.7

2.5

2.8

2.7

2.4

2.3

2.3

2.6

3.1

3.5

Indonesia

4.8

4.9

4.9

5.0

5.2

5.2

5.4

5.5

5.5

5.6

Turkey

5.1

4.4

4.0

3.4

3.2

3.5

3.5

3.6

3.6

3.6

Poland

3.4

4.1

2.5

3.4

3.6

3.1

4.1

3.4

3.4

3.3

South Africa

1.2

0.3

0.3

0.9

0.9

0.9

1.0

1.2

1.7

2.1

Developed a

1.9

1.7

1.6

1.5

1.6

1.8

2.0

1.8

1.7

1.7

Emerging b

3.6

3.6

3.9

4.0

4.0

4.3

4.7

4.9

5.1

5.0

World

2.5

2.3

2.4

2.4

2.5

2.7

3.0

2.9

2.9

2.9

(%)

a

c

US, Japan, France, Germany, Italy, Spain, UK, Canada, Australia and Switzerland.

b

Brazil, Russia, India, China, South Africa, Korea, Mexico, Indonesia, Poland and Turkey.

c

‘Fitch 20’ countries weighted by nominal GDP in USD at market exchange rates (3 year average)

Source: Fitch

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Contacts Economics

Brian Coulton Chief Economist Tel: +44 20 3530 1140 brian.coulton@fitchratings.com

Gergely Kiss

Khamro Ruziev

Tel: +44 20 3530 1425 gregg.kiss@fitchratings.com

Tel: +44 20 3530 1813 khamro.ruziev@fitchratings.com

Charles Seville North America Tel: +44 20 3530 1048 charles.seville@fitchratings.com

Shelly Shetty Latin America Tel: +1 212 908 0324 shelly.shetty@fitchratings.com

Douglas Renwick Western Europe Tel: +44 20 3530 1045 douglas.renwick@fitchratings.com

Andrew Colquhoun Asia Pacific Tel: +852 2263 9938 andrew.colquhoun@fitchratings.com

Paul Gamble Emerging Europe Tel: +44 20 3530 1623 paul.gamble@fitchratings.com

Jan Friederich Middle East and Africa Tel: + 852 2263 9910 jan.friederich@fitchratings.com

Sovereign Ratings

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