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CITI: Here's What Will Happen To The Global Economy In The Next 4 Years
Economic slowdown in China, elevated geo-political tensions between Russia and Ukraine, and the Fed's tapering of its stimulative asset-purchase program represent some of the biggest events in markets.
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But there are many more stories we need to be watching.
In its 52-page "Global Economic Outlook and Strategy" report, Citi's Willem Buiter and his team give us a sense of where the world's major economies are headed.
The economists expect the global economy to expand by 3.1% this year and by 3.4% in 2015.
Citi's Michael Saunders says his team continues to cut its emerging-market growth forecasts, although "this month’s revision largely reflects a large cut to our Russia GDP forecast, reflecting heightened uncertainty and the CBR’s recent rate hike."
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In China, Saunders expects policymakers to react to slower growth with "renewed credit easing."
Among developed economies, Citi expects higher growth from the euro area, U.K., and Sweden, but cuts Japan's growth forecast. In the U.S., Citi expects the recent winter weakness to be reversed and thinks rate hikes won't come until mid-2015.
We highlight a few of the viewpoints for each of the world's most important economies, including GDP forecasts through 2018.
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GDP Growth Forecast
- 2014: 2.8%
- 2015: 3.1%
- 2016: +3.2%
- 2017: +2.7%
- 2018: +2.2%
"The Fed continues to shift policy accommodation away from asset purchases and toward anchoring forward rates," writes Citi's Robert DiClemente. "We continue to expect preparations for rate hikes in the spring of 2015, with modest tightening beginning in the summer. We see two-way risks here: continued low inflation could delay tightening, while a faster recovery and wage gains could speed up exit."
Source: Citi
GDP Growth Forecast
- 2014: +2.3%
- 2015: +2.7%
- 2016: +2.7%
- 2017: +2.6%
- 2018: +2.4%
"Despite repeated shocks and lingering uncertainties, the economy continues to outperform expectations. Importantly, the expansion is gaining momentum," writes Citi's Dana Peterson. "Key supports to the expansion continue to include diminished tail risks abroad, reduced fiscal restraint in the US, the cheaper CAD, and North American energy infrastructure expansion. Internal demand rotation, commodity price volatility, softer EM growth and domestic competitiveness worries likely will remain as headwinds."
Source: Citi
GDP Growth Forecast
- 2014: +0.9%
- 2015: +4.0%
- 2016: +4.4%
- 2017: +4.5%
- 2018: +4.6%
"In our view, inflation risks are declining and there are no traces of second-round effects stemming from the fiscal reform," writes Citi's Sergio Luna Martinez. "We thus expect annual inflation to keep falling in coming months, reaching a trough of 3.75%, after which it should rebound due to the low annual comparison base. … This combination — fewer inflation risks and still a negative output gap — are consistent with our expectation of Banxico keeping its policy rate unchanged at 3.5%."
Source: Citi
GDP Growth Forecast
- 2014: +1.3%
- 2015: +1.8%
- 2016: +2.5%
- 2017: +3.0%
- 2018: +3.0%
"The energy situation is becoming more serious, and chances of rationing are increasing significantly," writes Citi's Marcelo Kfoury. "This may reduce the probability that President Rousseff is reelected in the first round. While her victory is still assumed in our base case scenario, the likelihood of an alternative outcome is increasing. ... Furthermore, we continue to expect the Central Bank to resume the tightening cycle in 2015, increasing the Selic rate by an additional 100bps (to 12%) in 1H15."
Source: Citi
GDP Growth Forecast
- 2014: +1.0%
- 2015: +1.5%
- 2016: -2.0%
- 2017: +3.5%
- 2018: +3.0%
"From a fundamental point of view, little has changed. The rise in nominal interest rates which took place in the beginning of this year has been largely offset by the acceleration in inflation, with consumer prices increasing by 35% in the last 12 months according to private estimates," writes Citi's Guillermo Mondino. "Additionally, the authorities have not delivered any fiscal tightening, and subsidy cuts continue to be delayed."
Source: Citi
GDP Growth Forecast
- 2014: -1.0%
- 2015: +1.9%
- 2016: +1.9%
- 2017: +1.9%
- 2018: +1.9%
"Social unrest continued affecting the country throughout February and most of March, with violent events adding to the already-challenging economic environment," writes Citi's Munir Jalil. "While we believe that the peak of this bout of politically-motivated social unrest has been reached, we cannot rule out additional social unrest as a consequence of the challenging economic situation faced by Venezuelans, namely high levels of inflation and scarcity."
Source: Citi
GDP Growth Forecast
- 2014: +2.2%
- 2015: +2.3%
- 2016: +2.2%
- 2017: +1.9%
- 2018: +1.7%
"For later years, we expect that supportive financing conditions will provide an ongoing boost to consumer spending and investment," writes Citi's Ebrahim Rahbari. " However, there are also some downside risks for German growth, if EM weakness intensifies or tensions with Russia-related tensions escalate (which are not our base case)."
Source: Citi
GDP Growth Forecast
- 2014: +1.0%
- 2015: +1.2%
- 2016: +1.5%
- 2017: +1.7%
- 2018: +1.8%
"The French government faces a crucial few weeks: ... (ii) the need to provide details of Responsibility Pact proposals on the arbitrage between lower labour charges and more jobs, iii) details of the €50bn of expenditure savings to be made over 2015-17 as part of the Stability Programme (15 April), iv) conclusions from the fiscal reform debates, v) draft law on decentralisation/regionalisation, and vi) confidence vote in parliament in the second half of April," writes Citi's Guillaume Menuet.
Source: Citi
GDP Growth Forecast
- 2014: +0.6%
- 2015: +0.9%
- 2016: +0.7%
- 2017: +0.7%
- 2018: +0.7%
"Medium-term GDP growth prospects remain poor, as the necessary supply-side reforms are not yet on the table. This implies the debt-to-GDP ratio is likely to stabilize only towards the end of our forecast horizon, at around 140%," writes Citi's Giada Giani.
Source: Citi
GDP Growth Forecast
- 2014: +0.9%
- 2015: +1.2%
- 2016: +1.5%
- 2017: +1.7%
- 2018: +1.8%
"We keep our forecast for 2014 real GDP at 0.9% but raise 2015 by 0.1pp to 1.2% to reflect stronger domestic demand (due to neutral fiscal policy) and robust exports," write Citi's Giani and Antonio Montilla. "Buoyant survey data, gains in registered employees, and a pick-up in retail sales suggest the economic recovery is maintaining momentum in Q1 14."
Source: Citi
GDP Growth Forecast
- 2014: -0.9%
- 2015: +0.8%
- 2016: +1.4%
- 2017: +1.6%
- 2018: +1.6%
"Private sector liquidity remains poor, the household saving rate is highly negative and export growth lags periphery peers," according to Citi's Giani. "Deflation is likely to persist, amid newly agreed reforms to enhance internal competition. Further debt relief on official loans is likely in coming quarters, but probably will fall short of an outright debt write-off. The public debt ratio is likely to rise further in coming years."
Source: Citi
GDP Growth Forecast
- 2014: +1.3%
- 2015: +2.9%
- 2016: +2.6%
- 2017: +2.8%
- 2018: +2.8%
"Trends in business surveys and employment (up 3.2% YoY) suggest that the economy’s underlying momentum is improving and we expect growth of about 0.7% QoQ in Q1," writes Citi's Michael Saunders. "The planned rundown of the government’s cash reserves should allow the general government debt/GDP ratio to fall slightly this year, although the debt ratio will only fall further in coming years if there is a sustained pickup in real and nominal GDP growth."
Source: Citi
GDP Growth Forecast
- 2014: +1.5%
- 2015: +1.7%
- 2016: +1.4%
- 2017: +1.5%
- 2018: +1.6%
"With 2013 fiscal targets outperformed, we assume some planned spending cuts will not be adopted," writes Citi's Giani. "Inflation will likely fall further, reflected in low nominal GDP growth, hence keeping the public debt-to-GDP ratio rising slightly in the next couple of years. We expect a “clean exit” from the bailout programme in May, as political costs of a precautionary credit line likely outweigh its benefits."
Source: Citi
GDP Growth Forecast
- 2014: +1.2%
- 2015: +1.3%
- 2016: +1.6%
- 2017: +1.9%
- 2018: +2.0%
"The economy is recovering, as the intensity of private sector deleveraging and fiscal consolidation moderates," according to Citi's Menuet.
"We raise our 2014 and 2015 GDP forecasts by 0.2pp & 0.4pp to 1.2% and 1.3%, respectively on better private sector investment prospects and faster growth in real household disposable income thanks to a low inflation profile extending well into 2015."
Source: Citi
GDP Growth Forecast
- 2014: +1.3%
- 2015: +1.4%
- 2016: +1.5%
- 2017: +1.9%
- 2018: +2.1%
"The main parties are busy finalizing their manifestos ahead of the May legislative elections" according to Menuet. "Finance Minister Koen Geens indicated earlier in March that there was a broad consensus to shift part of the fiscal burden away from labour to strengthen Belgium's competitive position, by mulling a VAT rate hike."
Source: Citi
GDP Growth Forecast
- 2014: +3.5%
- 2015: +3.6%
- 2016: +2.5%
- 2017: +2.1%
- 2018: +2.3%
"Inflation is likely to stay well below the 2% target throughout this year, and a little below target still for most of 2015. However, with the strong upturn in growth and rising capacity use, we suspect that the inflation undershoot ultimately will be quite short-lived unless there is a major external disinflationary shock," writes Citi's Saunders.
"The MPC have routinely hiked rates with inflation below target, reacting to capacity use, and we expect they will act the same in this cycle. We continue to expect the first hike to come in Q4 this year but, with the stronger growth outlook and rising capacity use, now expect the first stage of the tightening cycle to carry rates up to 2.5% in late 2015 (whereas last month we envisaged a pause at 2.0%)."
Source: Citi
GDP Growth Forecast
- 2014: +1.7%
- 2015: +1.9%
- 2016: +2.1%
- 2017: +2.0%
- 2018: +2.0%
"Growth is domestic-led, with domestic demand up 2.9% YoY in Q4 (highest gain since 2010) and investment up 4.3% YoY," according to Saunders. "With rising capacity use and low borrowing costs, we expect investment (and domestic demand in general) to remain strong, keeping GDP growth at about 2% in 2014."
Source: Citi
GDP Growth Forecast
- 2014: +2.6%
- 2015: +2.7%
- 2016: +2.9%
- 2017: +2.9%
- 2018: +2.7%
"There are still potential headwinds from Sweden’s high EM exposure, modest growth in key EMU export markets, and the need for eventual fiscal tightening to meet the government’s fiscal target," according to Citi's Tina Mortensen.
Source: Citi
GDP Growth Forecast
- 2014: +1.0%
- 2015: +1.5%
- 2016: +1.8%
- 2017: +1.7%
- 2018: +1.9%
"We continue to see moderately accelerating growth ahead, driven by both domestic demand and exports," according to Citi's Mortensen. "With economic growth set to outpace potential in 2014-15, unemployment should begin to edge lower and the sizeable output gap to slowly start closing. ...If the ECB does not cut again, the DNB may well hike during this year."
Source: Citi
GDP Growth Forecast
- 2014: +1.9%
- 2015: +2.1%
- 2016: +2.4%
- 2017: +2.8%
- 2018: +2.8%
"The previous boost from oil and housing is diminishing, while the ongoing erosion in external competitiveness suggests that Norway’s nonoil sector will be unable to gain fully from global recovery," writes Citi's Mortensen. "The supportive fiscal stance and low policy rates should ensure a soft landing rather than an abrupt economic downturn."
Source: Citi
GDP Growth Forecast
- 2014: +1.0%
- 2015: +2.3%
- 2016: +2.5%
- 2017: +2.5%
- 2018: +2.6%
"The rising tensions in Ukraine make for a very challenging backdrop for the Russian economy, creating substantial downside risks to economic performance," according to Citi's Ivan Tchakarov. "The combination of more subdued investment and consumption spending related to heightened uncertainty, and tighter monetary policy, led us to downgrade our 2014 GDP forecast from 2.6% to 1.0% (1.3% in 2013)."
Source: Citi
GDP Growth Forecast
- 2014: +2.3%
- 2015: +3.5%
- 2016: +3.9%
- 2017: +4.1%
- 2018: +4.1%
"All eyes are on the March 30 local elections, which will be followed by the first round of presidential elections on August 10th," write Citi's Ilker Domac and Gultekin Isiklar. "Turning to economics, while the production side seems resilient, we believe domestic demand is on track to weaken considerably. Specifically, the relatively sharp drop in consumer confidence, coupled with a tighter monetary policy stance and the lira depreciation, signals a significant drop in consumer spending."
Source: Citi
GDP Growth Forecast
- 2014: +3.4%
- 2015: +3.6%
- 2016: +3.6%
- 2017: +3.5%
- 2018: +3.2%
"Stronger GDP growth has been reflected in favourable budget trends at the start of the year and will likely translate into lower borrowing needs this year," write Citi's Peter Kalisz and Cezary Chrapek. "Lighter bond supply later this year, lower inflation, and prospects that rates will only rise next year will likely delay any increase in bond yields. Meanwhile, QE tapering by the Fed and weakening of EM currencies in coming months probably will also negatively impact the zloty."
Source: Citi
GDP Growth Forecast
- 2014: +0.9%
- 2015: +1.0%
- 2016: +1.2%
- 2017: +1.2%
- 2018: +1.0%
"Despite the Abe Administration’s strong prompting, the hike in base salaries in the spring wage negotiations was modest even at large firms whose business conditions are relatively favorable, suggesting that companies remain cautious about increasing fixed compensation," write Citi's Kiichi Murashima and Naoki Iizuka. "We expect the consumption tax hike in April will erode badly the real purchasing power of household nominal income.."
Source: Citi
GDP Growth Forecast
- 2014: +7.3%
- 2015: +7.0%
- 2016: +7.5%
- 2017: +7.3%
- 2018: +7.0%
"Growth may fall toward the government’s bottom line by the middle of the year," according to Citi's Minggao Shen and Shuang Ding. "The government probably will react by fine-tuning macro policies and supporting demand. There are signs that weak demand has contributed to the recent fall in financing costs. The government may advance investment in selected areas, including social housing, irrigation, railways in central and western regions, and energy-saving and environment protection."
Source: Citi
GDP Growth Forecast
- 2014: +5.6%
- 2015: +6.2%
- 2016: +6.6%
- 2017: +6.9%
- 2018: +7.0%
"India’s elections will remain a major focus until the 16 May results. Expectations are up, and so are equity and currency markets, which have also been buoyed by genuine progress in shrinking the twin deficits (i.e. current account and fiscal)," write Citi's Rohini Malkani and Anurag Jha.
"However, it is still an uphill task for the economy. While growth has likely bottomed, with GDP growth likely to pick up to 5.6% in FY15 from 4.9% in FY14, the shallow recovery is dependent on ‘unlocking investments’ and managing non-performing loans (NPLs) in the banking sector."
Source: Citi
GDP Growth Forecast
- 2014: +3.7%
- 2015: +3.9%
- 2016: +4.0%
- 2017: +3.6%
- 2018: +3.8%
"The jobless rate might stay higher, at around 31⁄2% in coming months," writes Citi's Jaechui Chang. "However, that might not lead policymakers to employ further accommodative measures since job growth in services and manufacturing sectors is expected to continue."
"The newly-appointed BoK Governor Lee passed his personal hearing at the National Assembly. At the hearing, he revealed his view that the current policy rate is low enough to support economic recovery, and that household debt trends are worrying but are unlikely to trigger a financial crisis."
Source: Citi
GDP Growth Forecast
- 2014: +5.3%
- 2015: +5.5%
- 2016: +5.7%
- 2017: +5.9%
- 2018: +5.7%
"The improving trend of the current account deficit, along with increased market transparency, has led to a decline in risk premia on LCY bonds," according to Citi's Helmi Arman.
"This has been topped by the long-awaited nomination of Jakarta Governor Joko Widodo as a presidential hopeful from the PDIP party. Widodo is widely expected to accelerate the pace of reform in Indonesia if elected to the presidency. However in terms of taking stock on the economy, we still see significant challenges ahead."
Source: Citi
GDP Growth Forecast
- 2014: +2.9%
- 2015: +3.0%
- 2016: +3.1%
- 2017: +3.4%
- 2018: +3.3%
"The upgrade reflects a slightly improved outlook for consumer spending but a substantially better dwelling investment profile. But the updates to the outlook were not all positive. We have brought forward the timing of the drop-off in mining capex, reflecting developments in commodity markets and further cost cutting in coal and iron ore projects," write Citi's Paul Brennan and Joshua Williamson.
"The risks to the economic outlook are now more evenly balanced compared to more downside risks only a few months ago. So while we have not moved the timing of the first RBA interest rate increase, there is more risk that this occurs in Q4 this year than further out in 2015."
Source: Citi
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