Fractious Politics & Elections: Impact on Reforms & Policymaking - Fitch

New Delhi, Dec 4 (PTI) Fractious politics can slow reforms and derail policymaking, and contentious elections can encourage the prioritisation of short-term growth, Fitch Ratings said on Monday as a large number of nations go to the polls.

In its Global Sovereigns Outlook 2024, Fitch highlighted that a large number of elections are scheduled in 2024, including Bangladesh, Croatia, Dominican Republic, El Salvador, India, Indonesia, Korea, Mexico, Pakistan, Panama, Romania, South Africa, Sri Lanka, Taiwan and the US. UK elections must be before the end of January 2025.

"Fractious politics can slow reforms and derail policymaking, and contentious elections can encourage the prioritisation of short-term growth objectives over longer-term structural initiatives," it said.

Fitch said lower inflation might not help incumbents much, given prices remain well above pre-pandemic levels in most countries.

The international environment is marred by two major conflicts entering 2024, neither of which appears to be on the verge of resolving longer-term underlying issues.

An escalation in these conflicts would likely trigger a marked increase in oil prices, which could have credit implications for oil exporters and importers.

Larger global fault lines, primarily aligned along US-China spheres of influence, are not conducive to the expansion of global trade and the unfettered deployment of capital across borders, but there may be modest improvements -- or at least a pause in the deterioration -- in 2024.

Fitch said real GDP growth and real interest rates are two macroeconomic factors critical for sovereign credit.

Fitch Ratings forecasts a decline in global economic growth to nearly 2 per cent in 2024 from about 3 per cent in 2023.

We expect the US economy to slow sharply but to avoid recession, and growth in China is projected to dip below 5 per cent.

A mild recovery in the eurozone will only partially offset weakness in the US and China.

"Leading international trade indicators do not yet point to a strong recovery, suggesting the external backdrop for many emerging markets is mixed at best," Fitch said.