Fitch Ratings expects a global recession next year as the world's major advanced economies suffer from the steepest decline in growth since World War Two. The United States, Great Britain, continental Europe and Japan will see their aggregate gross domestic product contract by 0.8 percent in 2009, compared to an estimated rise of 1.1 percent for 2008, the rating company said.
"Tighter credit conditions, consumer retrenchment and falling corporate investment are expected to combine to deliver an unusually synchronised downturn across the advanced economies," Fitch said in a report. World GDP will grow by just 1 percent next year, the slowest rate since the early 1990s, and compared to an average of 3.5 percent over the last five years.
A recession in developed countries, lower commodity prices and reduced international capital flows will result in a sharp slowdown in growth in emerging markets, though most will avoid outright recession, Fitch said.
Fitch cited the rapid intensification of the global credit crisis in the last two months, more evidence of household retrenchment and declining corporate investments for its bleaker outlook versus a previous outlook published in July.
"Recession driven by a contraction in the supply of credit is uncharted territory for the world economy and there are few historical parallels on which to gauge its possible depth or length," the report said.
Aggressive actions by world central banks to improve liquidity and inject capital into banks may head off worst-case scenarios of widespread deflation, Fitch said. Fitch expects growth to slow in China to just over 7 percent in 2009, its lowest rate for nearly two decades.
Growth in Brazil, Russia, India and China, known as the BRIC countries, is expected to be 5.7 percent overall. The decline of inflationary pressures from the commodity markets is positive and will allow the European Central Bank and the Bank of England to bring down interest rates rapidly, helping banks' profitability, the rating agency said.
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