Citigroup expects ‘less hard’ landing for global economy this year

Citigroup economists on Wednesday raised their global growth forecast slightly and see a “less hard” landing but still expect the world’s economy to grow at the slowest pace in 40 years.

The Wall Street brokerage now sees global growth slowing this year to about 2.2 per cent, 0.25 per cent higher than their previous estimate due to improving macroeconomic trends, it said in a note by economists led by Nathan Sheets.

Citigroup said its cautious pessimism is due to China's stronger and clearer economic outlook than previously estimated, stagnation in the euro area as opposed to a contraction estimated earlier and resilience in the United States.

The bank, however, said that stubbornly high inflation across the globe may temper growth.

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“By our reckoning, global headline inflation is still running somewhere in the 6-7 per cent range, well above central bank targets,” Mr Sheets said.

Echoing Bank of America and Goldman Sachs views last week, the brokerage also said it expected the US Federal Reserve to hike rates thrice this year, taking the Fed funds rate beyond 5 per cent.

Globally, US stocks posted strong gains in the beginning of the year after a rout in 2022, on expectations that inflation has peaked, China’s reopening and a pause or cut in interest rates.

But after more macroeconomic data pointed to sticky inflation, central banks including the Fed signalled more rate hikes.

“It appears that 2023 will be the year when the effects of that hiking cycle more fully play through,” Citigroup added.

Citigroup’s view of the global economy is more bearish than the International Monetary Fund (IMF), which sees global economic growth of about 2.9 per cent in 2023 before returning above 3 per cent a year later. That forecast released last month was itself an upgrade of about 0.2 percentage points compared to its previous projections.

The IMF said a more pronounced slide in economic growth across more developed economies in particular. It sees US growth slowing to about 1.7 per cent.

When releasing its own forecasts, the IMF warned that the rise in central bank rates to fight inflation and Russia’s war in Ukraine continue to weigh on economic activity. It said the balance of risks remain tilted to the downside.

Severe health outcomes in China could hold back the recovery while Russia’s war in Ukraine could escalate, it said.

Tighter global financing conditions could also worsen debt distress, the fund said ahead of three expected interest rate hikes from the European Central Bank, the US Federal Reserve and the Bank of England this week. The agency also warned of a possible stock market correction.

“Financial markets could also suddenly reprice in response to adverse inflation news, while further geopolitical fragmentation could hamper economic progress,” it said.

Despite these headwinds, it noted, however, that real GDP was surprisingly strong in the third quarter of 2022 in numerous economies, including the United States, the euro area, and major emerging market and developing economies.

“The sources of these surprises were in many cases domestic: stronger-than-expected private consumption and investment amid tight labour markets and greater-than-anticipated fiscal support,” the fund said. – Reuters