–Labor Markets Across Developed Countries Starting to Stabilize

By Yali N’Diaye

WASHINGTON (MNI) – Fitch Ratings is revising up its 2010 growth
forecasts for major developed economies, with the largest revisions to
U.S. and Japanese GDP, the credit ratings agency said Thursday in its
latest Global Economic Outlook.

U.S. GDP is now seen growing at a pace of 3.0% this year, a
0.5-point revision from the December 2009 estimate. Growth for 2011 has
been revised up 0.3 point to 2.9%.

Against this backdrop and given higher inflation due to rising
commodity prices, the Federal Reserve is likely to hike its Fed funds
rate by 25 basis points in the fourth quarter if this year.

The upward revision for Japan economic growth is even larger — 0.8
point for 2010 — to 1.8%.

On the other hand, the outlook for the euro area and the United
Kingdom is weaker than it was in December last year. The euro zone is
now expected to grow at a pace of 0.9% (revised down 0.1 percentage
point) this year and 1.6% (revised down 0.3 point) in 2011.

So on balance, the 2010 GDP growth forecast for major advanced
economies (MAEs) has been revised up by 0.3% from December to 1.9%,
“with large upward revisions to the U.S. and Japan partially offset by
marginally weaker growth forecasts for the EA and the UK.”

As a result, Fitch believes “monetary policy in the major advanced
economies is unlikely to be tightened sharply within the next 18 months,
as growth rates remain relatively subdued, unemployment and spare
capacity high and fiscal tightening is in prospect.”

In the U.S., where the Labor Department is expected Friday to
publish a strong employment report for March, the rating agency noted
the labor market has started “to show signs of stabilization and the
annual GDP growth rate (0.1% in 09Q4) should soon exceed 2.5% — a level
that has typically been associated with falling unemployment rates.”

That said, “hiring rates are still weak and with long-term
unemployment at record highs, it will likely take some time before
unemployment falls noticeably from its peak of around 10%,” it said.

Combined with household deleveraging, that should weight on the
recovery, preventing growth to reach an above-trend rate.

In the euro zone, data from the three largest economies — Germany,
France and Italy — “have been more encouraging,” the report said,
leading to only “marginal downward adjustments” to growth forecasts,
especially since the private sector is less exposed to deleveraging than
in the U.S.

Yet with the labor markets stabilizing in the major advanced
economies, so should the housing saving ratios from 2011.

And at the global level, 2010 “growth is expected to be more
dynamic at 2.8%, supported by growth of over 7.5% (in aggregate) in
Brazil, Russia, India and China,” Fitch said.

With such a robust growth, inflation concerns for the BRICS —
especially Brazil, India and China — are greater, Fitch concluded.

** Market News International New York Bureau: 212-669-6430 **

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