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

citi willem buiterCiti’s Willem Buiter

Photo: Bloomberg

Citi recently published its 48-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, led by Chief Economist Willem Buiter.The team recently became more optimistic about the developed markets.

“For 2013, the advanced economy upgrade is offset by a slight downgrade to our [emerging market] forecasts to leave our global growth forecast at 2.6%, while we are edging up our 2014 global growth forecast from 3.1% to 3.2% (at current exchange rates),” wrote Buiter. 

On China: “After last year’s slowdown, we continue to expect China’s economic growth to level off at 7-8% this year and 7-71⁄2% per year in 2014- 2017, reflected in ongoing rapid productivity gains.”

Buiter’s team expects euro area GDP to fall, and cut forecasts for various smaller economies: “Even with the recent improvement in financial conditions, major central banks are likely to keep monetary policy loose and indeed to loosen further, with ongoing asset purchases by the Fed and BoJ, further ECB rate cuts and renewed QE by the BoE.”

Buiter’s team breaks down what’s going on in each economy, and gives GDP growth forecasts through 2016.  We pulled the highlights.

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North America

The United States: financial conditions are improving

GDP Growth Forecast

  • 2013: 1.9%
  • 2014: 3.1%
  • 2015: 3.5%
  • 2016: 4.0%

Things are looking up for the United States, according to Citi's Robert DiClementi, as private demand is showing surprising strength, and the housing market finally seems to be perking up and in a sustainable fashion. Payroll taxes will probably be a bit of a drag on the economy in the near term. Slow but steady growth will mean that inflation will remain stable.

Source: Citi

Canada: the economy will continue to grow moderately

GDP Growth Forecast

  • 2013: 1.8%
  • 2014: 2.7%
  • 2015: 3.2%
  • 2016: 3.3%

Weak global demand and competition are putting a damper on exports, and housing moderation and fiscal consolidation are capping domestic demand, says Citi's Dana Peterson. However, impressive hiring and stable domestic financial conditions will drive moderate growth within the Canadian economy.

Source: Citi

Mexico: moderate growth dependent on structural reforms implemented later this year

GDP Growth Forecast

  • 2013: 3.6%
  • 2014: 3.8%
  • 2015: 4%
  • 2016: 3.8%

A mild slowdown in the fourth quarter of 2012 was offset by declining inflation thanks to a surprising drop in mobile phone service costs, according to Marcelo Kfoury, who expects moderate growth in Mexico in the years to come. Growth will be dependent on how well Mexico's Congress implements structural reforms, which may materialise in the second half of 2013.

Source: Citi

South America

Brazil: power rationing is dampening growth

GDP Growth Forecast

  • 2013: 3.1%
  • 2014: 4.2%
  • 2015: 3.5%
  • 2016: 3.5%

Rising inflation and slowing growth caused Citi's Marcelo Kfoury to cut GDP estimates for 2013 by 0.3%. Power rationing is putting an upwards pressure on inflation, and fiscal policy measures are proving to be ineffective.

Source: Citi

Argentina: a depreciating peso will stimulate growth

GDP Growth Forecast

  • 2013: 3.0%
  • 2014: 3.0%
  • 2015: 2.0%
  • 2016: -2.0%

Citi's Joaquin Cottani says that even though real GDP growth fell in 2012, compared to 2011 (based on an in-house real GDP estimator), growth will likely pick up in 2013, due to monetary expansion and the depreciation of the peso.

Source: Citi

Venezuela: uncertainly over Chavez's health will be a real drag on the economy

GDP Growth Forecast

  • 2013: 2.0%
  • 2014: 2.0%
  • 2015: 3.1%
  • 2016: 2.5%

Worries over President Chavez's health will cause a lot of uncertainty, and Venezuela will experience a macroeconomic deterioration, according to Citi's Munir Jalil. 'Required economic measures will not take place until this uncertainty is resolved,' and inflation will return to the 25% mark.

Source: Citi

Western Europe

Germany: modest recovery in exports and financial easing will help keep it out of recession

GDP Growth Forecast

  • 2013: 0.5%
  • 2014: 0.5%
  • 2015: 1.0%
  • 2016: 2.3%

GDP fell more than it was expected to in the fourth quarter of 2012, but higher-than-expected business expectations and stronger non-EU demand mean that Germany is going to chug along at a 0.5% growth rate in 2013, according to Citi's Jürgen Michels. Going forward, the economy is likely to benefit from a modest recovery in exports and limited financial easing. 2013 is an election year, and Michels expects that Angela Merkel will remain Chancellor, but with a different coalition partner.

Source: Citi

France: bullish labour reform will offset cyclical deterioration of the economy

GDP Growth Forecast

  • 2013: -0.2%
  • 2014: 0.2%
  • 2015: 1.0%
  • 2016: 1.5%

Citi's Gaullaume Menuet says that France's economy has seen slight cyclical deterioration in the last quarter. But the government also launched the Competitiveness Pact, a crucial labour reform deal that boosted business confidence and will likely offset the impact of the cyclical deterioration.

Source: Citi

Italy: the ongoing recession is unlikely to end anytime soon

GDP Growth Forecast

  • 2013: -1.4%
  • 2014: -1.4%
  • 2015: 0.3%
  • 2016: 0.2%

Citi's Giada Giani says that the size of the 2013 fiscal drag is going to be much less than that in 2012, but still significant. Elections uncertainty will weigh on investment decisions, and it's quite likely that Italy will need external financial assistance within the year. In the long run, some form of debt restructuring is inevitable.

Source: Citi

Spain: the recession will remain severe

GDP Growth Forecast

  • 2013: -2.2%
  • 2014: -2.0%
  • 2015: 0.6%
  • 2016: 1.2%

Even though Spain's fourth quarter GDP wasn't as bad as expected, weak domestic economic indicators combined with fiscal austerity mean that the recession will remain severe in 2013, according to Citi's Giada Giani. Banks will likely need to recapitalize, thanks to rising unemployment and non-performing loans. Debt restructuring is inevitable.

Source: Citi

Greece: the fiscal position will remain unstable

GDP Growth Forecast

  • 2013: -6.5%
  • 2014: -11.5%
  • 2015: -3.6%
  • 2016: 1.6%

Despite Greece's public deficit being in line with targets and another debt buyback, Citi's Giada Giani says that the country's financial position remains unstable. Only a major write-off in the euro area would make Greece's debt sustainable. Fiscal tightening will cost Greece around 5% in GDP in 2013, and 2.2% in 2014.

Source: Citi

Ireland: expiring pharmaceutical patents will put a dent in the economy

GDP Growth Forecast

  • 2013: 0.5%
  • 2014: 1.5%
  • 2015: 0.9%
  • 2012: 1.6%

Expiring pharmaceutical patents added to Ireland's already declining industrial production towards the end of 2012. However upwards revisions to the first three quarters indicate that Ireland's not do quite so badly, according to Citi's Michael Saunders. This country too will require some form of debt restructuring.

Source: Citi

Portugal: fiscal austerity will continue to slam GDP

GDP Growth Forecast

  • 2013: -3.7%
  • 2014: -2.8%
  • 2015: -0.3%
  • 2016: 0.9%

Citi's Giada Giani says that Portugal's 2013 budget cuts will likely cause the country's GDP to continue to fall, and at a faster rate than in 2012. And that's not all, Giani expects that 'Portugal will need additional bailout funds after the current programme ends in mid-2014.'

Source: Citi

Netherlands: a value-added tax hike will send the country back into recession

GDP Growth Forecast

  • 2013: -0.9%
  • 2014: 0.3%
  • 2015: 1.0%
  • 2016: 1.2%

Citi's Jurgen Michels says that the hike in VAT in October caused Netherlands to go back into recession, and that the rising unemployment and falling home prices aren't helping any. Demand will also contract in 2013, however net exports will increase.

Source: Citi

Belgium: fiscal tightening will cause the economy to contract in 2013

GDP Growth Forecast

  • 2013: -0.3%
  • 2014: 0.3%
  • 2015: 1.2%
  • 2016: 1.5%

Citi's Guillaume Menuet says that the Belgium economy probably experienced a double dip in the second half of 2012, and that the economy will continue to contract through 2013. Though business confidence is rebounding from its recent lows, fiscal tightening is putting a damper on domestic demand. The country's banking system remains a liability.

Source: Citi

UK: Rising deficits will cause the UK to lose its AAA rating in 2013

GDP Growth Forecast

  • 2013: 0.4%
  • 2014: 0.7%
  • 2015: 1.3%
  • 2016: 1.5%

Citi's Michael Saunders cut his growth forecast for the UK from 0.8% to 0.4% because of sticky inflation, high current account deficit and overshooting fiscal deficit. 'The economy faces persistent headwinds from private deleveraging, poor credit availability, structural export weakness and the EMU crisis, while fiscal drag is increasing this year.'

Source: Citi

Switzerland: interest rates will remain ultra low, and growth will outpace EMU average

GDP Growth Forecast

  • 2013: 1.4%
  • 2014: 1.2%
  • 2015: 1.3%
  • 2016: 1.3%

Citi's Michael Saunders says Swiss GDP growth will remain resilient, beating EMU averages. However, thanks to negative inflation, the SNB will keep interest rates at zero.

Source: Citi

Sweden: the economy will continue to struggle with rising unemployment in 2013

GDP Growth Forecast

  • 2013: 1.0%
  • 2014: 2.5%
  • 2015: 2.6%
  • 2016: 2.8%

Sweden's resilience is being tested by falling exports and rising unemployment, according to Citi's Tina Mortenson, however, the country should be able to avoid recession. Domestic demand will remain weak, as consumers seem reluctant to spend despite sound household finances.

Source: Citi

Denmark: domestic demand and spending will revive the economy

GDP Growth Forecast

  • 2013: 0.9%
  • 2014: 1.8%
  • 2015: 1.8%
  • 2016: 1.9%

Large pent-up household demand, public sector consumption and investment will revive the Danish economy, says Citi's Tina Mortensen. However, recovery will be weak as household will continue to deleverage after the housing bust.

Source: Citi

Norway: thanks to oil, it continues to be unaffected by the global slowdown

GDP Growth Forecast

  • 2013: 3.1%
  • 2014: 2.7%
  • 2015: 2.7%
  • 2016: 2.9%

Despite headwinds from a slowing global economy, Norway's high oil receipts are cushioning it from recession, says Citi's Tina Mortenson. There will be a minor slowdown in the economy in 2014, but GDP will still continue to grow.

Source: Citi

Eastern Europe

Russia: growth will remain subdued as consumers buy less

GDP Growth Forecast

  • 2013: 3.0%
  • 2014: 3.7%
  • 2015: 3.3%
  • 2016: 3.3%

Growth will remain subdued, according to Citi's Elina Ribakova, thanks to slowing retail sales high inflation. The CBR will probably wait to make policy rate changes.

Source: Citi

Turkey: inflation is a big risk

GDP Growth Forecast

  • 2013: 4.0%
  • 2014: 4.3%
  • 2015: 4.6%
  • 2016: 4.5%

The overall growth picture for Turkey remains mixed, says Citi's Ilker Domac, with inflation edging higher thanks to the CBT's unconventional and potentially unstable dovish monetary policy.

Source: Citi

Poland: low consumer spending is slamming growth

GDP Growth Forecast

  • 2013: 1.3%
  • 2014: 2.8%
  • 2015: 3.3%
  • 2016: 3.3%

Weakening economic activity and slowing growth in the fourth quarter of 2012 caused Citi's Plotr Kallaz to cut GDP estimates by 0.3%. This was mostly because of weakening private consumption, low business investment and tight fiscal policy.

Source: Citi

Asia

Japan: Yen depreciation and the stimulus package will perk up the economy

GDP Growth Forecast

  • 2013: 1.3%
  • 2014: 1.2%
  • 2015: 1.5%
  • 2016: 1.2%

Citi's Kiichi Murashima notes that the depreciation of the Yen combined with the recently announced economic stimulus package concentrated on public works spending will likely increase GDP growth by an additional 0.6% in 2013. Financial markets have been pricing in Prime Minister Abe's 'eye catching statements about monetary policy.'

In addition, the economy currently shows signs of a soon-to-come cyclical pickup.

Source: Citi

China: GDP growth will remain below the 8% mark

GDP Growth Forecast

  • 2013: 7.8%
  • 2014: 7.3%
  • 2015: 7.0%
  • 2016: 7.5%

Though China's GDP rallied in second half of 2012, it is unlikely that it will hit 8% in the coming years, according to Citi's Minggao Shen. Policy easing and infrastructure investment will keep that number above the 7% mark. However, a declining working age will put downwards pressure on growth, as it will have profound impacts on labour costs and supply in the long run.

Source: Citi

India: growth will gain momentum

GDP Growth Forecast

  • 2013: 6.2%
  • 2014: 6.9%
  • 2015: 7.3%
  • 2016: 7.4%

Industry activity is volatile, inflation and PMI data seem to be stabilizing in India, and gold and oil will keep imports high, according to Citi's Rohini Malkani. India's economy will chug along, gaining momentum towards the end of 2014.

Source: Citi

Korea: growth will accelerate after accommodative macro policies kick in

GDP Growth Forecast

  • 2013: 3.2%
  • 2014: 4.1%
  • 2015: 4.3%
  • 2016: 4.2%

Citi's Jaechul Chang cut growth estimates for Korea by 0.2% for 2013, because of slower-than-expected growth momentum in the fourth quarter of 2012, which was due to sluggish exports and investments. However, the recovery will accelerate in second half of 2013, on the back of accommodative macro policies.

Source: Citi

Indonesia: the biggest risk comes from a government that is reluctant to act

GDP Growth Forecast

  • 2013: 6.1%
  • 2014: 6.3%
  • 2015: 6.5%
  • 2016: 6.5%

Rebounding coal and palm oil prices, which are good for Indonesia's economy, were more than offset by weakening oil and gas prices. In addition, the country faces an emerging risk from 'policy paralysis' from the government, who seem reluctant to adjust fuel subsidies, and from monetary authorities who don't want to tighten policy, according to Citi's Heimi Arman.

Source: Citi

Australia: rebounding demand for commodities from China will boost growth

GDP Growth Forecast

  • 2013: 2.4%
  • 2014: 3.0%
  • 2015: 3.5%
  • 2016: 3.6%

Resilient commodity prices combined will Chinese growth will boost Australia's economy, while a strong AUD will be a headwind, according to Citi's Paul Brennan. Overall, the economy will grow at steady pace.

Source: Citi

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