The US labour market and demand have begun to feel the effects of rate rises in 2023, according to Fitch Ratings. While the political landscape remains highly uncertain and geopolitical risks persist, signs of a slowdown in the US economy are becoming evident through weak credit growth and slowing consumer spending. This trend is expected to continue into the second half (H2) of 2024, with headline real GDP growth forecast to materially decelerate, although it will stay well above recession territory in Fitch's base-case scenario.

Continued disinflation and the onset of a global monetary policy shift have lowered the probability of a significant negative credit risk scenario from ongoing monetary tightening. The European Central Bank (ECB) implemented its first rate cut in early June, following similar moves by the Swiss National Bank and the Bank of Canada, the latter cutting rates for the second time in late July. Although Fitch now anticipates a slightly slower pace of rate cuts from the Federal Reserve in 2024 compared to expectations at the end of 2023, recent US inflation and labour market data support the likelihood of two rate reductions in the second half of 2024, as per Fitch.

Political uncertainty remains a significant concern, underscored by a series of elections in major economies during the second quarter of 2024 and early July. Elections in France, the UK, India, Mexico, and South Africa, as well as the European Parliament elections, saw incumbents lose ground or lose outright, except in Mexico. The upcoming US election in November is particularly relevant for global credit markets as it could signal a shift in policy in several critical areas.

Geopolitical tensions continue to be a dominant theme, with ongoing conflicts in Ukraine and between Israel and Hamas, as well as simmering tensions in other global hotspots. The broader context of geo-strategic friction among major powers remains a key long-term issue. Fitch warns that the greatest risk to credit markets would arise from a direct conflict in one of these hotspots. However, ongoing geopolitical tensions are likely to influence areas such as trade and investment policies, capital flows, supply chains, and foreign direct investment (FDI).

Fibre2Fashion News Desk (DP)