Citi Research has once again cut its global growth forecast through the end of 2016. In a new report, analyst Willem Buiter explained why Citi’s outlook has become bleaker in recent months and what Citi’s latest projections mean for global investors.
The Numbers
Citi’s latest projections call for only 2.6 percent global growth in 2015, down from the 2.7 percent projection the firm issued a month ago. In addition, Citi’s 2016 growth forecast dropped to 2.9 percent, down from 3.1 percent one month ago and 3.5 percent four months ago.
The latest downgrade marks Citi’s fourth consecutive 2016 growth downgrade. Citi's largest growth downgrades were issued to Argentina, Brazil, Korea, Russia, Nigeria and Turkey.
The Good News
Despite the downgrades, Citi believes that, as far as U.S. and European investors are concerned, the weakness in emerging markets is more likely a mid-cycle slowdown than a significant downturn.
“However, unlike the late 1990s EM crisis, we do not expect EM weakness to be followed by a V-shaped rebound in advanced economies, because of the higher weight of Ems in global growth, the relative paucity of monetary policy options for powerful stimulus among advanced economies, plus the widespread overhang of high public and private debt levels,” Buiter explained.
Outlook
Based on the latest projections, Citi now has a relatively dovish outlook for monetary policy. The firm is calling for the first Federal Reserve rate hike in spring 2016 and sees further easing in coming months In Europe, Japan and China.
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