CITI: This Is What Will Happen To The Global Economy Through The Next Three Years

Willem Buiter

Photo: Bloomberg TV

Citi recently published its 56-page Global Economic Outlook and Strategy report, which provides up-to-date commentary and forecasts for the major economies covered by the bank’s army of economists.In a nutshell, the global economy is struggling to generate positive growth.  And two of the world’s largest economies – China and Japan — are getting worse.

“The outlook is balanced between economic fragilities — with slowing growth in Asia, subpar recovery in the U.S. and widespread recessions plus periphery strains in Europe — coupled with a new wave of central bank stimulus (monetary policy, credit easing and extra liquidity) across all major economic regions.,” wrote Citi Chief Economist Willem Buiter.  “We are leaving our 2012 global growth forecast (at current exchange rates) at 2.5 per cent, while cutting our 2013 forecast to 2.6 per cent from 2.8 per cent last month. Within that, we are making notable cuts to our growth forecasts for China and Japan, plus more modest forecast downgrades to a range of emerging markets, especially in Asia plus Central and Eastern Europe.”

Buiter’s team breaks down what’s going on in each economy.  We pulled the highlights.

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North America

The United States will avoid a full fiscal cliff, but there will be a 1 percentage point drag from the public sector

GDP Growth Forecast

  • 2012: 2.2%
  • 2013: 1.9%
  • 2014: 3.0%
  • 2015: 3.5%

Citi's Robert DiClementi notes food and gas prices have been unfavorable lately. But overall, inflation has been tame. The U.S. economy is also being bolstered by improving housing indicators and an easy Federal Reserve. Citi assumes the U.S. will 'avoid a fiscal calamity in 2013.'

Source: Citi

Canada's business and consumer confidence are strong

GDP Growth Forecast

  • 2012: 2.0%
  • 2013: 2.2%
  • 2014: 2.8%
  • 2015: 3.2%

Citi's Dana Peterson notes that Canada continues to grow, driven by consumer spending and business investment. Financial conditions also continue to improve.

Source: Citi

Mexico's industrial sector is strong, but it's slowing

GDP Growth Forecast

  • 2012: 3.9%
  • 2013: 3.8%
  • 2014: 3.5%
  • 2015: 3.6%

Citi's Sergio Luna Martinez notes the industrial sector has been strong, boosted by demand for transportation equipment.

Source: Citi

South America

Brazil is struggling from both global and domestic factors

GDP Growth Forecast

  • 2012: 1.4%
  • 2013: 3.9%
  • 2014: 4.5%
  • 2015: 4.5%

Citi's Marcelo Kfoury notes that Brazil is struggling from a slowing global economy as well as high food price inflation.

Source: Citi

Argentina's economic indicators are improving

GDP Growth Forecast

  • 2012: 1.5%
  • 2013: 3.0%
  • 2014: 2.0%
  • 2015: 2.0%

Citi's Joaquin Cottani notes that industrial production has boosted economic activity. However, there are some concerns regarding slow auto sales.

Source: Citi

Venezuela is all about the upcoming elections

GDP Growth Forecast

  • 2012: 5.0%
  • 2013: 3.5%
  • 2014: 4.0%
  • 2015: 3.0%

From Citi's Munir Jalli: 'With only weeks before the presidential election takes place on October 7, presidential campaigns by President Chávez and opposition candidate Henrique Capriles have reached their climax. In an environment in which both candidates have stepped up the mutual attacks, most polls still favour Mr. Chávez over Mr. Capriles.' Meanwhile growth is high, and inflation is cooling down.

Source: Citi

Western Europe

Germany's solid domestic demand will keep it out of recession

GDP Growth Forecast

  • 2012: 1.0%
  • 2013: 0.6%
  • 2014: 0.5%
  • 2015: 0.7%

Citi's Jurgen Michaels expects strength in domestic demand to offset weakness in its exports.

Source: Citi

France will miss deficit targets as growth will fall below expectations

GDP Growth Forecast

  • 2012: -0.1%
  • 2013: -0.2%
  • 2014: 0.9%
  • 2015: 1.2%

Citi's Guillaume Menuet notes that the government's strategy to meet deficit targets relies on higher taxes. However, he thinks France will nevertheless miss those targets.

Source: Citi

Italy's spending cuts will are slow to materialise and unemployment will continue to rise

GDP Growth Forecast

  • 2012: -2.5%
  • 2013: -2.1%
  • 2014: -0.2%
  • 2015: 0.4%

Citi's Jurgen Michels thinks weak consumption and high unemployment rates will persist though 2013. Italy is likely to miss its fiscal deficit targets.

Source: Citi

Spain will ask for a bailout by the end of the year

GDP Growth Forecast

  • 2012: -1.8%
  • 2013: -3.2%
  • 2014: -0.8%
  • 2015: 0.9%

Citi's Ebrahim Rahbari expects Spain to request a sovereign debt bailout by the end of the year, sooner should interest rates rise.

Source: Citi

Greece's GDP will continue to get slammed by austerity

GDP Growth Forecast

  • 2012: -7.5%
  • 2013: -10.7%
  • 2014: -3.4%
  • 2015: 1.4%

Citi's Jurgen Michels sees a very high chance that Greece exits the euro within 12-18 months. New austerity measures will be rolled out later this year, which will continue to hinder growth.

Source: Citi

Ireland's economy will disappoint everyone and contract in 2012

GDP Growth Forecast

  • 2012: -0.6%
  • 2013: 0.6%
  • 2014: 2.4%
  • 2015: 2.4%

Citi's Michael Saunders sees Ireland contracting in 2012, which is much more bearish than the consensus forecasts for growth. Ireland will soon require a massive debt restructuring.

Source: Citi

Portugal's recent increase in exports won't offset weak domestic demand

GDP Growth Forecast

  • 2012: -3.8%
  • 2013: -5.7%
  • 2014: -1.3%
  • 2015: 1.1%

Citi's Jurgen Michels notes that domestic demand continues to fall and is more than offsetting any benefits from rising exports. 'Portugal remains on an unsustainable fiscal path and we therefore continue to have a debt restructuring (including PSI and OSI) in our base case, which we expect to occur in 2014.'

Source: Citi

The Netherlands will see budget deficits rise as leaders push back on austerity

Belgium's economy will pick up in spring 2013

GDP Growth Forecast

  • 2012: -0.2%
  • 2013: -0.2%
  • 2014: 0.7%
  • 2015: 1.4%

Citi's Guillaume Menuet expects the Belgium economy to contract modestly into Spring 2013. Meanwhile, the government still needs to cut 4.6 billion euros from its budget.

Source: Citi

The UK's retail sales are weak and credit remains tight

GDP Growth Forecast

  • 2012: -0.5%
  • 2013: 0.3%
  • 2014: 1.0%
  • 2015: 1.3%

Citi's Michael Saunders recently cuts his forecast for the UK due to weak retail sales, industrial production, and exports. Also, debt levels remain high and credit is tight.

Source: Citi

Switzerland will experience a long period of ultra-low interest rates

GDP Growth Forecast

  • 2012: 1.2%
  • 2013: 1.0%
  • 2014: 0.9%
  • 2015: 0.9%

Citi's Michael Saunders notes the strong Swiss franc has been bad for exports, but low interest rates are helping consumer spending. Inflation is negative.

Source: Citi

Sweden's major indicators are pointing to an economic slowdown

GDP Growth Forecast

  • 2012: 1.0%
  • 2013: 1.9%
  • 2014: 2.3%
  • 2015: 2.5%

Citi's Tina mortenson notes that Sweden's economic indicators are slowing, but favourable policies will keep it out of recession.

Source: Citi

Denmark's currency is weakening against the euro, which is helping exports

GDP Growth Forecast

  • 2012: 0.1%
  • 2013: 1.1%
  • 2014: 1.6%
  • 2015: 1.7%

Citi's Tina Mortensen notes that the Danish kroner, which many consider to be a safe-haven currency, has finally weakened some against the euro. This is good news for trade.

Source: Citi

Norway continues to be unaffected by the global slowdown

GDP Growth Forecast

  • 2012: 3.5%
  • 2013: 3.2%
  • 2014: 2.7%
  • 2015: 2.7%

Citi's Tina Mortenson notes that the oil sector is booming, spending is increasing, jobs are looking good, and incomes are gaining. Norway's central bank could soon raise interest rates

Source: Citi

Eastern Europe

Russia's consumer is losing steam

GDP Growth Forecast

  • 2012: 3.5%
  • 2013: 4.0%
  • 2014: 4.1%
  • 2015: 4.0%

David Lubin notes that retail sales and wage growth are slowing.

Source: Citi

Turkey's domestic demand is falling

GDP Growth Forecast

  • 2012: 2.5%
  • 2013: 4.3%
  • 2014: 4.6%
  • 2015: 4.7%

Citi's Ilker Domac notes that domestic demand is taking a bite out of growth. The lira is weakening, which could soon lead to tighter monetary policy.

Source: Citi

Poland is shifting to more easy monetary policy

GDP Growth Forecast

  • 2012: 2.4%
  • 2013: 2.2%
  • 2014: 2.8%
  • 2015: 3.3%

Citi's Plotr Kallaz notes monetary policy has become more dovish in the face of a slowing economy.

Source: Citi

Asia

Japan is struggling due to slowing exports

GDP Growth Forecast

  • 2012: 2.1%
  • 2013: 1.3%
  • 2014: 0.2%
  • 2015: 1.5%

Citi's Kiichi Murashima expects exports to pick p in 2013 as the U.S. accelerates, China picks up, and Europe stabilizes.

Source: Citi

China is slowing

GDP Growth Forecast

  • 2012: 7.9%
  • 2013: 7.6%
  • 2014: 7.3%
  • 2015: 7.0%

Citi's Minggao Shen sees growth picking up in Q4. But Shen also cut 2013 growth as inflation concerns hinder stimulus efforts. Manufacturing PMI recently fell below 50,which is worrisome.

Source: Citi

India's growth is slowing, but reforms are finally coming

GDP Growth Forecast

  • 2012: 5.4%
  • 2013: 6.2%
  • 2014: 6.9%
  • 2015: 7.3%

Citi's Rohini Malkani expects long-awaited reforms to finally come including new fuel price-related measures and changes to foreign direct investment restrictions.

Source: Citi

Korea is getting hit by slowing domestic demand and weaker exports to China

GDP Growth Forecast

  • 2012: 2.8%
  • 2013: 3.3%
  • 2014: 3.7%
  • 2015: 4.1%

Citi's Jaechul Chang recently slashed his growth estimate for the export-driven economy due to slowing in China and weakness in the domestic consumer.

Source: Citi

Indonesia will benefit from strong domestic demand

GDP Growth Forecast

  • 2012: 6.2%
  • 2013: 6.1%
  • 2014: 6.3%
  • 2015: 6.5%

Citi's Heimi Arman notes that retail sales are up and consumer confidence is strong..

Source: Citi

Australia's domestic economy is strong, but falling commodity prices will be a challenge

GDP Growth Forecast

  • 2012: 3.7%
  • 2013: 3.2%
  • 2014: 3.4%
  • 2015: 3.8%

Citi's Paul Brennan forecasts slowing among Australia's trade partners. Lower mined commodity prices will be unfavorable. But domestic demand is strong.

Source: Citi

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