Yearly GDP growth for Developed Economies projected at 1.6%

Fitch Ratings has updated its five-year projections for supply-side potential Gross Domestic Product (GDP) growth for the 10 developed economies (‘DM10’), raising the GDP-weighted average DM10 potential growth projection to 1.6% per year.

This represents a 0.2% upward adjustment from the 1.4% projected in its August 2023 report.

In an update to its Global Economic Outlook, Fitch noted that the upgrade is largely driven by a significant reassessment of the US economic outlook, with potential growth expected to average 2.1% annually over the next five years, a sharp increase from its previous 1.7% projection.

“US economic performance in the past five years surpassed earlier expectations by a wide margin,” the report stated, and indicated that actual GDP and labour productivity grew at an average annual rate of 2.4% and 1.7%, respectively, between 2020 and 2024.

This according to the UK-based firm, was partly supported by a period of rapid immigration from 2022 to 2024, which expanded the labour force. While the firm expects immigration to slow and potential growth to moderate from its recent highs, the new baseline is higher.

Spain and the UK also saw similar positive revisions. Spain’s potential growth forecast was raised to 2.0% from 1.4%, reflecting “sustained improvements in labour market performance.”

The UK’s outlook was upgraded to 1.4% from 1.2%, benefiting from stronger immigration which has increased the working-age population projection “despite policy goals to slow it.”

The report revealed that these positive trends were partially offset by a downward revision for Germany, the largest economy in the eurozone.

Fitch slashed Germany’s potential growth forecast to 0.7% from 1.1%, noting that its economy “has not grown in the past five years,” but projected a mild recovery as productivity growth normalizes and public investment increases.

Other major economies saw modest revisions Australia and Switzerland saw their projections edge up by 0.1% to 2.2% and 1.5%, respectively. However, forecasts for France and Canada dropped 0.1 point to 1.1% and 1.4%, respectively.

Yearly growth projections for Japan (0.5%) and Italy (0.7%) were maintained.