By Sara Sjolin
25 February 2016
(MarketWatch) – The risk of a global recession has risen, Citigroup says, as advanced economies such as the U.S. and eurozone show signs of sputtering.
The bank’s analysts have cut their global growth forecast for 2016 to 2.5%, where just in January they pegged it at 2.7%. In the middle of 2015, they predicted growth of 3.4%.
“Allowing for probable mismeasurement in China’s GDP data, ‘genuine’ global growth in 2016 probably will be barely above 2% year-on-year,” the analysts said.
In fact, that reading could even slide below 2%, if the economic weakness seen around the world persists, Citi said, raising the possibility of a recession in 2016. That’s if you define “recession” as growth below 2%, as Citi does; the more common definition is two straight quarters of contraction in gross domestic product.
Citi’s team noted the past month had brought a string of lackluster economic reports from developed areas, to add to the more established problems in China and broader emerging markets.
“Recent weeks have brought further signs that global growth is slowing, but with a renewed emphasis on weakness among [advanced economies], whereas over the last couple of years the main source of disappointment has come from [emerging markets],” said the analysts, led by chief economist Willem Buiter, in a note dated Feb. 24.
In particular, they pointed to the eurozone and Japan’s disappointing gross-domestic-product readings for the fourth quarter, as well as to deteriorating business surveys in Europe and the U.S.
Plus, growth in industrial production has turned negative in the U.S., Japan, the U.K. and the eurozone — for the first time since the 2009 recession.
“Industrial production is only a modest share of GDP for the [advanced economies] but, because data is timely, [that] data provide a valuable snapshot of recent economic trends — and it is clear that activity is weakening,” the Citi analysts said.
And another risk to global growth has emerged over the past week, they noted — the “Brexit,” shorthand for the prospect of the U.K. leaving the EU.
On June 23, British voters will decide in a referendum whether to leave or stay in the European Union, of which the country has been a member for more than 40 years. Economists have raised concerns that an exit would significantly hit the U.K. economy and send the pound GBPUSD, +0.8172% down around 20%. [more]
By Julie Verhage
26 February 2016
(Bloomberg) – After a few years of reasonably calm markets and stable growth around the world, Citigroup Inc. says the chances of a global recession are already high and only going up.
"In our view, global growth is at a highly precarious point, after 2-3 years of relative calm," the team of economists led by Willem Buiter said in their note likely to exacerbate concerns about the world's ability to withstand a pause in China's stunning economic growth.
"The long-standing fragilities in the world economy relate to the structural and cyclical slowdowns in China and its unsustainable exchange rate regime, the excessive level of debt across many countries and sectors and ongoing regional and geopolitical uncertainty," the economists said. The economists have accordingly revised their forecast for growth this year in advanced economies from a 2.4 percent back in January 2015 to 1.6 percent currently, and warned the 2016 figure "could well be lower."
When they adjust for what they call "true Chinese growth," the Citi team finds that global growth might have been as low as 2 percent year-over-year in the final quarter of 2015. That is the lowest since the eurozone recession of 2012-2013, and if growth remains at such depressed levels, it would qualify as a global recession according to their measures:
"The most recent deterioration in the global outlook is due to a moderate worsening in the prospects for the advanced economies (AE), a large increase in the uncertainty about the AE outlook (notably for the U.S.) and a tightening in financial conditions everywhere. Unlike most of the previous years, the most recent worsening in global growth prospects and global sentiment is therefore driven by the advanced economies rather than [emerging markets] … Below-potential global growth will likely reinforce disinflationary momentum and global growth could fall to even one percent or lower, in the event of an even sharper AE downturn (including eg a U.S. recession). [more]