Global Economic Outlook and Strategy

- Global "The recent strains in equity and credit markets create some headwinds for the global recovery. Nevertheless, we do not expect these pressures to derail our long-held view of a “sustained but uneven” global recovery, led by Asia and with Europe lagging."
- United States "Weaker financial conditions and fresh signs of a pullback in housing activity have prompted downward revisions to near-term growth estimates. Federal Reserve officials have reaffirmed the primary focus on promoting financial stability and likely will leave rates near zero well into 2011. Recovery does not appear threatened as business and consumer spending have held up and increased labor usage is bolstering household incomes. Barring a serious financial setback, a challenging fiscal outlook will raise crowding out concerns as recovery matures."
- Euro Area "We have left our euro area growth forecast unchanged, but expect an even larger gap between the growth of the fiscally strained countries and the core countries. In addition to the activation of the European Financial Stability Facility (EFSF), the euro area countries have also made some progress in setting up new fiscal rules. While we expect the ECB to leave rates unchanged until 2Q or 3Q next year, it requires additional ECB action to prevent a significant increase in money market rates near term."
- China "The economy is moderating as fixed asset investment flattens and industrial output weakens but inflation inches up to above 3%. Revived renminbi appreciation suggests Chinese authorities are willing to advance structural rebalancing, but moves will likely be gradual to reflect the cautious macro backdrop."
- Japan "The economy likely will maintain above-trend growth under a combination of a continued uptrend in exports, a pick-up in business and housing investment and a modest improvement in labor and income conditions. The new administration focuses more on fiscal reform than the previous administration and we have revised down our forecasts for long-term interest rates accordingly."
- United Kingdom "The UK is better placed to return to fiscal sustainability than many realise, and we expect the fiscal deficit to fall quite rapidly, thanks to fiscal consolidation measures plus the underlying pick-up in revenues."
- Canada "We maintain our call for a 25bp rate hike in July, and a year-end policy rate target of 1.50%. However, given the intensification of certain downside risks of late, we have further moderated our growth forecasts and now anticipate a terminal policy rate of 3.00% in 3Q 2011."
- Australia "We have slightly lowered our GDP forecast for this year, and now expect growth to be around trend rather than above by year-end. As a result, we have pushed back the timing of further rate rises by the RBA to the December qtr this year. We expect one further rate rise before year-end and 100bp of additional tightening by the end of next year, taking the cash rate to 5.75%."
- Emerging Asia (ex China) "Recovery remains on track, but momentum may be peaking, with exports and investment upturn likely to taper off on global uncertainties. Inflation is gradually rising, but we don't see strong impetus for central banks to hike imminently. Robust long-term growth prospects remain intact, hence managing capital flows will likely remain a lingering issue. We think Asia’s REER appreciation will persist in the longer term."
- Latin America "The assessment that events in Europe will have only a limited impact in the region has turned attention to cyclical factors again. As activity continued to gain momentum, several Central Banks hiked rates and will likely continue hiking them in coming months."
- CEEMEA "In Emerging Europe, the region closest to the eurozone turmoil, we expect growth to stay moderate in H2, but we have cut by 0.2 ppts our GDP forecast for 2011 as CEE feels the impact of tighter policy in Western Europe. Meanwhile the CPI outlook is tamer, allowing central banks to remain accommodative in the face of uncertainties. We have pushed back our rate hike expectations for Hungary and Turkey."
Citigroup Global Economic Outlook and Strategy June2010