CITI: This Is What Will Happen To The World In The Next 4 Years

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Citi’s latest 48-page “Global Economic Outlook and Strategy
report is out, providing commentary and forecasts on where the bank thinks the world’s major economies are headed.
Dogged by fiscal “episodic uncertainty,” the euro area and the U.S. face “persistent tail risks that could derail the gradually improving economic outlook,” writes Citi’s chief economist Willem Buiter. “But, the most likely outcome in both the US and euro area is that policymakers will do enough to avert a crisis, even if this involves further ‘kicking the can down the road.'”

As for China, Citi continues to see “major concerns about the medium-term sustainability” of growth despite the country’s Q3 rebound.

“More broadly, although delayed Fed tapering may provide supportive near term liquidity conditions, we continue to see downside risks to growth in a wide range of other EM countries, amidst sluggish world trade growth, plus the buildup of EM imbalances (fiscal, current account, private debt),” he wrote.

In the report, Buiter’s team breaks down what’s happening in each economy. We pulled out the highlights.

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North America

Citi predicts the U.S. taper of QE will happen in March.

GDP Growth Forecast

  • 2013: 1.6%
  • 2014: 2.6%
  • 2015: 3.2%
  • 2016: 3.2%
  • 2017: 3.0%

'The outlook for inflation remains softer than policymakers' medium-term goal of 2%. Slower growth abroad has contained pressures on domestic goods prices and labour costs remain subdued,' wrote Citi's Robert DiClemente. 'We expect a gradual move closer to the 2% target over the forecast horizon underpinned by domestic demand and moderately stronger growth abroad. Labour costs should firm somewhat with continued gains in hiring demand.'

Source: Citi

Canada's housing market poses a threat to its growth.

GDP Growth Forecast

  • 2013: 1.6%
  • 2014: 2.4%
  • 2015: 2.9%
  • 2016: 3.0%
  • 2017: 2.7%

'The central bank continues to hold the overnight rate target at 1.00% and intends to keep interest rates low as long as slack persists, inflation expectations remain benign and there is gradual reduction of household imbalances. Higher mortgage rates prompted by US Fed taper discussions likely have also rendered a welcome degree of consumer restraint that allows for unchanged policy rates for longer. Although the BoC removed its tightening bias, we believe that elevated household debt and housing market excesses pose risks to the outlook. We continue to anticipate fixed rates until 1Q 15,' writes Citi's Dana Peterson.

Source: Citi

Mexico has been gaining momentum.

GDP Growth Forecast

  • 2013: 1.2%
  • 2014: 3.8%
  • 2015: 4.0%
  • 2016: 3.8%
  • 2017: 3.7%

'Our forecast for GDP growth in 2014 is also unchanged at 3.8%,' wrote Citi's Sergio Luna Martinez. 'For its part, annual headline inflation fell further in September to 3.4% YoY, from 3.5% in the previous month, with annual core inflation at 2.5% YoY.'

Source: Citi

South America

Brazil's economic growth will take a sharp drop.

GDP Growth Forecast

  • 2013: 2.6%
  • 2014: 2.0%
  • 2015: 2.0%
  • 2016: 2.5%
  • 2017: 3.0%

'The tighter monetary policy and the lower forecasts for the USDBRL led us to lower our 2014 inflation forecast to 5.9%, from 6.2% previously,' writes Citi's Marcelo Kfoury. 'We continue to expect consumer inflation to stand at 5.9% by the end of this year.'

Source: Citi

Low growth and inflation will dog Argentina.

GDP Growth Forecast

  • 2013: 5.3%
  • 2014: 3.0%
  • 2015: 2.0%
  • 2016: -2.0%
  • 2017: 3.5%

'We expect few changes to the policy framework after the elections, despite some recent positive announcements (the settlement of some ICSID lawsuits). It should not go overlooked that the recent approval by Congress of several important bills will provide the government with ample discretionary control of the budget,' according to Citi's Guillermo Mondino.

Source: Citi

Venezuela will have to watch inflation.

GDP Growth Forecast

  • 2013: 2.3%
  • 2014: 2.8%
  • 2015: 2.1%
  • 2016: 2.4%
  • 2017: 2.5%

'On the economic front, we are keeping our GDP growth forecasts at 2.3% and 2.8% for 2013 and 2014, respectively,' writes Citi's Munir Jalil. 'However, we see a worst outlook in terms of inflation, with Caracas CPI annual inflation standing at 50% and the national gauge at 53.4% by yearend, as a result of domestic supply bottlenecks, the scarcity of foreign currency faced by the private sector, and ample liquidity.'

Source: Citi

German growth remains around trend.

GDP Growth Forecast

  • 2013: 0.6%
  • 2014: 1.9%
  • 2015: 1.7%
  • 2016: 1.7%
  • 2017: 1.5%

'A Grand Coalition is likely to be formed eventually (possibly by end-November), and we expect such a government to put in place policies that are modestly supportive of domestic demand, while remaining reserved on the European dimension,' according to Citi's Ebrahim Rahbari.

Source: Citi

France is seeing a modest recovery.

GDP Growth Forecast

  • 2013: 0.2%
  • 2014: 0.8%
  • 2015: 0.9%
  • 2016: 1.4%
  • 2017: 1.9%

'If there was more confidence in the administration's ability to deliver faster GDP growth and jobs, then pent-up demand could be unleashed,' writes Citi's Guillaume Menuet. 'For now though, the government's popularity remains at a record low.'

Source: Citi

Italy will still struggle to break through.

GDP Growth Forecast

  • 2013: -1.7%
  • 2014: 0.1%
  • 2015: 0.0%
  • 2016: 0.2%
  • 2017: 0.6%

'The 2014 Budget envisages a slight fiscal loosening in 2014 (0.2% of GDP), but we think that poor credit availability (unlikely to alleviate ahead of potentially- challenging AQR and stress tests) and export weakness will keep 2014 GDP broadly flat,' writes Citi's Giada Giani.

Source: Citi

Spain has broken out of the recession and is looking to gain momentum.

GDP Growth Forecast

  • 2013: -1.3%
  • 2014: 0.1%
  • 2015: 0.7%
  • 2016: 1.2%
  • 2017: 1.3%

'The recent upward revision to the household saving rate (now in line with its long-run average) suggests private consumption dynamics is likely to be somewhat better than we had expected,' writes Citi's Giani and Antonio Montilla. 'Together with smaller budget deficit cuts and strengthening exports, this should allow small positive real GDP growth in 2014.'

Source: Citi

Greece's fiscal gap in 2014 will put it back in the spotlight.

GDP Growth Forecast

  • 2013: -3.8%
  • 2014: -2.9%
  • 2015: -1.4%
  • 2016: 0.9%
  • 2017: 1.3%

'Discussions on further debt-relieving measures are being delayed until spring 2014: a large debt relief from official lenders would probably be the only viable (but politically painful) option to restore fiscal sustainability,' according to Citi's Giani.

Source: Citi

Recent data suggests the Irish economy grew slightly in Q3.

GDP Growth Forecast

  • 2013: -0.5%
  • 2014: 1.4%
  • 2015: 1.6%
  • 2016: 2.7%
  • 2017: 3.0%

'With very low inflation, nominal GDP growth probably will continue to undershoot official forecasts, keeping the public debt/GDP ratio roughly stable in 2014-15 -- in contrast to official hopes for a falling debt ratio in 2014,' writes Citi's Michael Saunders.

Source: Citi

Belgium's Prime Minister is overestimating his growth forecast.

GDP Growth Forecast

  • 2013: 0.0%
  • 2014: 0.5%
  • 2015: 1.0%
  • 2016: 1.5%
  • 2017: 1.6%

'PM Elio Di Rupo has indicated that his government will continue to implement a strategy of mixing budgetary savings and policies to support businesses and the purchasing power of consumers as part of the 2014 budget targeting a deficit of 2.15% of GDP,' according to Citi's Menuet.

Source: Citi

The U.K. recovery is being helped by consumer spending and homebuilding.

GDP Growth Forecast

  • 2013: 1.4%
  • 2014: 3.0%
  • 2015: 3.2%
  • 2016: 2.7%
  • 2017: 2.2%

'Key drivers for our above-consensus growth forecast are: looser monetary and credit conditions, with the low pound, low lending rates plus the 'Help to Buy' scheme; reduced headwinds from household deleveraging, the EMU crisis and fiscal drag; plus pent-up demand for housing and cars,' writes Citi's Saunders.

Source: Citi

Switzerland will see modest growth.

GDP Growth Forecast

  • 2013: 1.7%
  • 2014: 1.5%
  • 2015: 1.7%
  • 2016: 1.8%
  • 2017: 1.5%

'The economy is growing at a modest pace, supported by loose domestic monetary conditions, but may face some headwinds if EM tensions hit exports,' writes Citi's Saunders. 'With inflation close to zero and subdued inflation prospects, the SNB is likely to keep policy on hold for some time.'

Source: Citi

The Danish economy has been stagnant since the financial crisis.

GDP Growth Forecast

  • 2013: 0.3%
  • 2014: 1.2%
  • 2015: 1.4%
  • 2016: 1.5%
  • 2017: 1.7%

'Our forecast assumes moderately accelerating growth ahead, driven by rising domestic demand, but also supported by growing exports now the euro area has exited recessionary territory,' according to Citi's Mortensen. 'Inflation will probably end this year at a historically low level, driven primarily by lower taxes, and should, hence, prove temporary.'

Source: Citi

Norwegian momentum has peaked.

GDP Growth Forecast

  • 2013: 1.8%
  • 2014: 2.2%
  • 2015: 2.5%
  • 2016: 2.7%
  • 2017: 2.7%

'Momentum has peaked and the Norwegian economy is heading towards a more moderate growth phase with below-trend mainland GDP growth in coming years,' writes Citi's Mortensen. 'After growing briskly last year, the growth pace has slackened, the labour market weakened and the housing market cooled.'

Source: Citi

Eastern Europe

Russia will try to rely on monetary stimulus in response to a GDP slowdown.

GDP Growth Forecast

  • 2013: 1.4%
  • 2014: 2.8%
  • 2015: 3.2%
  • 2016: 3.2%
  • 2017: 3.3%

'Monetary policy has not yet been loosened, but the stage for monetary loosening has been set by the government's decision to freeze utility and railway tariffs next year,' writes Citi's David Lubin. 'This should take pressure off CPI and make room for rate cuts.'

Source: Citi

Turkey will muddle through but there's risk of a sudden jolt.

GDP Growth Forecast

  • 2013: 3.5%
  • 2014: 4.0%
  • 2015: 4.2%
  • 2016: 4.2%
  • 2017: 4.2%

'We believe that rising growth concerns will likely keep short-term real rates in negative territory, with the lira bearing the brunt of the adjustment during times of heightened FX market pressures,' according to Citi's Ilker Domac and Gultekin Isiklar. 'Against this backdrop, while our base case scenario envisions that Turkey will muddle through, the possibility of another 'sudden-stop' episode, which could push the economy into recession sometime in the next 12 months, cannot be discarded.'

Source: Citi

Poland is growing slowly but surely.

GDP Growth Forecast

  • 2013: 1.3%
  • 2014: 3.1%
  • 2015: 3.3%
  • 2016: 3.3%
  • 2017: 3.2%

'Recent changes in the pension system are likely to significantly cut the general government deficit and create fiscal room to boost GDP,' according to Citi's Piotr Kalisz and Cezary Chrapek. 'As a result, we now expect economic growth to reach 3.1%YoY in 2014 versus 1.3% in 2013, and our forecast is significantly above consensus (2.5%).'

Source: Citi

Asia

Japan's consumption tax hike will hurt its economy.

GDP Growth Forecast

  • 2013: 1.9%
  • 2014: 1.8%
  • 2015: 1.0%
  • 2016: 1.2%
  • 2017: 1.2%

'We expect the Bank of Japan to implement an additional easing action as a policy offset against the consumption tax hike,' writes Citi's Kiichi Murashima and Naoki Iizuka. 'However, judging from recent statements from the BoJ officials, policymakers are unlikely to act in a forward-looking manner ahead of the tax hike.'

Source: Citi

Citi's 2014 growth forecast for China would be the country's lowest since 1990.

GDP Growth Forecast

  • 2013: 7.6%
  • 2014: 7.2%
  • 2015: 7.0%
  • 2016: 7.5%
  • 2017: 7.3%

'China's growth remains highly unbalanced, and still seems dependent on extraordinary credit stimulus. As a result, we continue to have major concerns about the medium-term sustainability of China's growth,' according to the report.

Source: Citi

India has seen some growth in the infrastructure sector but faces challenges.

GDP Growth Forecast

  • 2013: 4.8%
  • 2014: 5.6%
  • 2015: 6.7%
  • 2016: 7.3%
  • 2017: 7.4%

'Although growth dipped to a decadal low of 5.0% in FY13, the inflation dynamics have prevented policy environment from turning expansionary. Monetary policy remains focused on inflation control while risks of fiscal retrenchment have risen as government aims to meet its fiscal deficit targets,' writes Citi's Anurag Jha.

Source: Citi

Indonesia's policies have become more sustainable.

GDP Growth Forecast

  • 2013: 5.7%
  • 2014: 5.3%
  • 2015: 5.5%
  • 2016: 5.9%
  • 2017: 6.0%

'Juxtaposed with the delay to Fed tapering, risk perceptions have generally subsided a notch, reflected in a slightly stronger exchange rate and lower bond yields,' writes Citi's Helmi Arman. 'We adjust our FY13 current account deficit forecast to 3.3% of GDP from 3.5% previously, while maintaining our FY14 forecast of 2.7%.'

Source: Citi

Australian GDP will hit its growth stride around mid-2014 at the earliest.

GDP Growth Forecast

  • 2013: 2.5%
  • 2014: 3.0%
  • 2015: 3.0%
  • 2016: 3.0%
  • 2017: 3.2%

'Households have held onto most of the post-election bounce in consumer sentiment and business confidence has increased,' write Citi's Paul Brennan and Joshua Williamson.' Historically low interest rates and gains in wealth from higher house prices should begin to translate into a pick-up in domestic demand growth.'

Source: Citi

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