Fitch Ratings, the international rating agency, has cut its forecast for euro area growth from 2% to 1.5% for 2005 but with the US, Japan and China expected to continue to enjoy relatively strong growth, the global economy is forecast to still expand by 3% this year, albeit down from last year's near record of 4%. Its forecast on China's GDP growth 2005 is 7.5 percent.

On June 13 it expressed its concern over the continuing imbalances within and between the world's largest economies which are increasing the risk of a sharper downturn in global growth and a potentially destabilising correction in asset prices.

Fitch notes in the June edition of its Sovereign Review that as much as half of the reduction in emerging market credit spreads since the beginning of 2000 could be accounted for by low US interest rates and greater risk appetite amongst investors suggesting that a marked change for the worse in the global economic environment could quickly and materially adversely impact emerging markets' access to and cost of borrowing from international capital markets.

Nonetheless, emerging market economies as a whole and especially sovereign issuers are well placed to absorb any shock to global growth, Fitch said.

Fitch's assessment of emerging markets as a whole is that they are much better placed now to absorb a more severe downturn of the world economy than they were a decade ago.

However, they still remain vulnerable to gyrations in global financial markets, Fitch said.

By People's Daily Online