Economists Expect Moderation of Global Growth, Not a Collapse
NEW YORK, November 26 /CNW/ - Citi's Economic and Market Analysis group
today released its annual Prospects for Financial Markets report titled Stress
and Resilience: Market Implications for 2008 and Beyond.
The report, which presents detailed market and economic views from Citi
economists, discusses the interaction between monetary policy and the pricing
of risk, as well as emerging market economies' vulnerability to external
"Our base case forecast reflects the judgment that the current stresses
from the U.S. housing sector, high oil prices, a weak U.S. dollar and the
recent financial turmoil will not overwhelm the global economy," said Lewis
Alexander, Chief Economist and Head of Economic and Market Analysis at Citi.
"But, the level of uncertainty around our base case is unusually high."
The strains in the core of the global financial system have intensified
in recent weeks. Incoming economic data, however, point to moderation of
global growth, not a collapse, according to the Citi report. The global
economy has important sources of resilience. The U.S. economy benefits from
strong productivity growth, a lack of imbalances outside the housing sector
and strong household finances. Non-financial corporates have high profit
margins and strong balance sheets. Core emerging economies have found a
formula for high sustained growth. Better macroeconomic performance has helped
to insulate emerging economies from external financial shocks.
In addition, Citi economists expect many major central banks to ease
policy in coming months, including another 100 basis points in interest rate
reductions from the Federal Reserve. "We do not expect either inflation or
concerns about 'moral hazard' to prevent major central banks from easing,"
said Alexander, "and this will help to limit downside risks."
The economic outlook for the industrial world in 2008 is driven by the
fallout from the plunge in U.S. housing and the related financial turmoil that
has gripped the U.S. and Europe. U.S. housing activity probably will decline
for much of 2008, with house prices likely to fall even longer. U.S.
households also face higher energy and credit costs, while mounting credit
stress and reduced risk appetite will weigh on U.S. financial stability until
there is greater confidence that the expansion will survive the test. These
downdrafts are likely to be most intense in the current quarter.
The Euro area is slowing with a lag, reflecting the impact of past policy
tightening, the expanding influence of the ongoing money and credit crisis,
and the strengthening of the euro.
In Japan, the outlook continues to depend on external demand to achieve
near-par expansion, while modest income gains slow consumption. Uncertainty
will encourage the Bank of Japan to act very slowly in 2008.
"Our growth forecasts for emerging markets remain relatively robust next
year driven by continued strong growth in Asia," said Alexander. "But, we
anticipate a slowdown in central Europe, which remains vulnerable to weak
industrial country growth, and lower growth in Latin America."
Citi, the leading global financial services company, has some 200 million
customer accounts and does business in more than 100 countries, providing
consumers, corporations, governments and institutions with a broad range of
financial products and services, including consumer banking and credit,
corporate and investment banking, securities brokerage, and wealth management.
Citi's major brands include Citibank, CitiFinancial, Primerica, Smith Barney
and Banamex. Additional information may be found at www.citigroup.com or
For further information:
For further information: For a copy of the 72-page report, please
contact: Citi U.S. Brooke Berard, 212-816-2300 firstname.lastname@example.org or
Europe Devonne Spence, 44(20) 7986-5283 Devonne.email@example.com or Asia James
Griffiths, 852 2868-7668 firstname.lastname@example.org or Latin America Claudia
Lima, 305-347-1400 email@example.com