U.S.-based credit rating agency Fitch Ratings warned against the political risks and instability that instigates protectionist economic policies in its latest Global Economic Outlook Report released Tuesday.
The surge in populism and anti-establishment sentiment witnessed in the Brexit vote and Donald Trump's victory in the U.S. presidential election seem likely to push policies in the direction of economic nationalism, entailing a reduction in trade openness and international labor migration, said Fitch Ratings in its latest global economic outlook. At the same time, electoral expressions of discontent are pushing leaders of the developed world to embrace easier fiscal policies.
"In the long term, there is little doubt that increased trade protectionism and weaker migration flows would dampen growth in the advanced economies. However, in the short run, it is likely that the shift towards fiscal reflation will be the dominant factor," said Brian Coulton, Chief Economist at Fitch.
He further elaborated on the U.S. growth forecasts for the next two years. "We have revised our global growth forecasts for 2017 upwards as the U.S. is now expected to see a significant fiscal boost, albeit far smaller than that set out in President-elect Trump's campaign proposals. Fitch's U.S. growth forecasts have been revised upwards modestly, by 0.2 percentage points in 2017 and 0.1 in 2018, to 2.2 percent and 2.3 percent, respectively."
Saying protectionist trade policies and reflated fiscal policies are likely to reduce the ratings of both developed and developing countries, Fitch Ratings announced that the 2018 outlook of country credit ratings is stable. The institute forecasts that Trump's plan for nationalist trade policies will have a huge impact, probably a negative one, on the U.S.' credit rates in the medium term.