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Citi Just Made "Global Recession In 2016" Its Base Case Scenario

Tyler Durden's picture




 

Over the weekend, we reported that in a dramatic turn of events, the research division of Japan's second biggest brokerage house, Daiwa, did what nobody else has done before and released a report in which it made a global financial "meltdown", one resulting from nothing short of a Chinese economic cataclysm its base case scenario, its base case. It added that the impact of this global meltdown would "be the worst the world has ever seen." To wit:

Of all the possible risk scenarios the meltdown scenario is, realistically speaking, the most likely to occur. It is actually a more realistic outcome than the capital stock adjustment scenario.  The point at which the capital stock adjustment is expected to hit bottom is at a much lower point than in the previously discussed capital stock adjustment scenario (see Chart 8). As shown in the bottom right portion of this chart, the actual economic growth rate will continue to register considerably negative performance. If China’s economy, the second largest in the world, twice the size of Japan’s, were to lapse into a meltdown situation such as this one, the effect would more than likely send the world economy into a tailspin. Its impact could be the worst the world has ever seen.

We ended the post with the following rhetorical question: "now that Daiwa has broken the seal on Chinese and global doomsday scenarios, how soon other banks will follow in Daiwa's path, and predict an Armageddon scenario which sooner or later, becomes a self-fulfilling prophecy even without the help of China's increasingly clueless micromanagers."

Today we got the answer: 48 hours - that's how long it took Citi's chief economist Willem Buiter to issue a report which was just as dire as Daiwa's, but because Citigroup is much more reliant on keeping it traditionally bullish clients as happy as possible, one had to read between the lines to get to the bottom line.

This is Citi's punchline: "A global recession starting in 2016, led by China is now our Global Economics team's main scenario. Uncertainty remains, but the likelihood of a timely and effective policy response seems to be diminishing."

Some of the other points from Buiter:

  • China continues to dominate much of the current debate; specifically the extent to which the now well publicized economic slowdown could have wider contagion  effects. Citi's Global economics team, led by Willem Buiter, believes that China could be the driving force behind a global recession during the next two years.

  • Last week we presented four scenarios based on different outcomes for Chinese and US economic growth. One of those scenarios; a global recession in which China's slowdown drags other emerging markets and eventually the advanced economies down with it, has been examined in detail by our Global Economics team.

* * *

  • Any global recession is likely to originate in emerging markets with China in particular at risk of a hard landing
  • If the global economy slides into a recession of moderate depth and duration during 2016, it will most likely be dragged down by slow growth in a number of key emerging markets, and especially in China. We see such a scenario as increasingly likely. Indeed, we consider China to be at high and rapidly rising risk of a cyclical hard landing.
  • There has been a long history in China of the official GDP data understating true GDP during a boom and overstating it during a slowdown. Citi’s own best prediction of ‘true’ real GDP growth for 2015 is 4% or less. Other activity indices overwhelmingly suggest an economy in which the growth of industrial production and capital expenditure is slowing rapidly.
  • Recession in China and other EMs would likely slow DM growth too Should China enter a recession, with Russia and Brazil already in recession, we believe that many other EMs will follow, driven in part by the effects of China’s downturn on the demand for their exports and, for the commodity exporters, on commodity prices. We also consider it likely that, should the EMs enter recession territory, the advanced economies or developed markets (DMs) will not have enough resilience, either spontaneous or policy-driven, to prevent a global slowdown and recession. The large DMs may not experience recessions themselves but will likely grow more slowly; possibly more slowly than potential, and almost certainly more slowly than expected.

But why so much skepticism when central banks have historically done everything in their power to kick the can on the inevitable collapse, so far with passably successful results? Precisely that: Buiter now says tthat "the likelihood of a timely and effective policy response seems to be diminishing."

The key for markets will be the policy response in China and, of course, the way in which DM central banks react to greater volatility, rising risk premia in asset prices and the implied tightening in financial conditions. Recent rhetoric still suggests that raising rates is still right in the middle of the Fed's radar screen, but markets are suggesting that this may not be possible, with a September hike certainly being priced lower and lower. If the markets are right and there is an offsetting policy response to weaker equity and commodity markets, it will bring to mind parallels with 1998. This would suggest that it might be premature to turn  too bearish on DM equities. If, however, EM growth concerns do spill-over to DM, we can envisage a time when we may want to reverse our preference for DM over EM, but that time is not here yet.

So, as expected, with Daiwa daring to first notice the 'naked emperor' the scramble to be next has been unleashed. Citi was first, who is next, and how soon until the market finally realizes that central banks are losing control of not only the economy and markets, but most importanly, the "confidence" narrative?

And as for the bigger question: how many months after the Fed hikes and unleashes said global recession, does the Fed unhike and launch QE4 or QE Air or QE Pro, or whatever Tim Cook advises Janet Yellen to call it.

 

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Mon, 09/14/2015 - 13:21 | 6546756 Dr. Engali
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These people crack me up trying to pretend that we aren't already in a depression, and we have been since 2000.

Mon, 09/14/2015 - 13:24 | 6546783 general ambivalent
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Is there a really good professional economics name for a recession in a recession in a depression in a recession?

Mon, 09/14/2015 - 13:27 | 6546800 Temporalist
Temporalist's picture

A reredeprecession?  Or as ZHers call it a "shitshow."

Mon, 09/14/2015 - 13:29 | 6546817 KnuckleDragger-X
KnuckleDragger-X's picture

Popcorn and tequila.....

Mon, 09/14/2015 - 13:39 | 6546869 Muddy1
Muddy1's picture

I'm going with salsa and chips.  I'll sit back and see how soon Snyder, Celente, Martinson, Faber, Shott, et., and et. wait until they jump onto the 2016 bandwagon.  Jade Helm was nothing and Shemtah has come and gone, nothing.  Need I say more?

Mon, 09/14/2015 - 13:41 | 6546889 Jtrillian
Jtrillian's picture

It's been a while since we had a good 'ol fashioned global depression with some hyperinflation thrown in. 

Mon, 09/14/2015 - 14:04 | 6547031 sleigher
sleigher's picture

The jubilee year just started.  Give it some time.

Mon, 09/14/2015 - 13:28 | 6546816 Mr Poopra
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"Krugmanomics"

Mon, 09/14/2015 - 14:58 | 6547377 HardlyZero
HardlyZero's picture

...Inception ?  (movie)

Mon, 09/14/2015 - 15:20 | 6547484 undertow1141
undertow1141's picture

I just call it 'Today'

Mon, 09/14/2015 - 13:27 | 6546808 saints51
saints51's picture

What cracks me up besides what you stated is, why the fuck does yellen give a shit what Tim Cook thinks? Tim takes his orders from the closet homo goldman just like the yellen.

Mon, 09/14/2015 - 13:28 | 6546811 KnuckleDragger-X
KnuckleDragger-X's picture

"We can't call it doomsday, so let's call it a minor correction in the fairy dust futures".......

Mon, 09/14/2015 - 13:31 | 6546813 Dutti
Dutti's picture

That does not mean that US Stock-"markets" can not go up - check out Venezuela!
One big difference though: US$ is still strong because of reserve currency status. The US can print unlimited amounts of US$ and the rest of the world so far has no alternative than to suck it up.

Mon, 09/14/2015 - 13:44 | 6546903 Question Reality
Question Reality's picture

Except that reserve currency status is going the way if the dodo bird with countries dumping dollar denominated assets to preserve their pegs.

Mon, 09/14/2015 - 13:29 | 6546818 Bill of Rights
Bill of Rights's picture

Seriously, more mind fucking is all it is, I see people picking outta fuck'en trash cans everyday, and yet these clowns sit in their posh offices preaching to the choir...

Mon, 09/14/2015 - 13:36 | 6546853 Mises Sense
Mises Sense's picture

If they say in 2016 then in reality they mean now. Sell, sell, sell!

Mon, 09/14/2015 - 13:51 | 6546942 MalteseFalcon
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"These people crack me up trying to pretend that we aren't already in a depression, and we have been since 2000."

We are in a depression.  They don't have a name for what's coming.

I'll take a shot at it:  abyss.

Mon, 09/14/2015 - 15:22 | 6547496 undertow1141
undertow1141's picture

or we can try 'Fuct'

Mon, 09/14/2015 - 13:19 | 6546758 kliguy38
kliguy38's picture

did they say "Best case" scenario

Mon, 09/14/2015 - 13:25 | 6546787 Mr Poopra
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Basically, unless WW3 starts in Syria in the next few weeks.  Then "best case scenario" is having a glass of tears to wash down your shoe leather sandwich once a week.

Mon, 09/14/2015 - 13:31 | 6546828 Bill of Rights
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Leather? you must be rich...lol

Mon, 09/14/2015 - 13:35 | 6546844 Mr Poopra
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Let me dream, man.

Mon, 09/14/2015 - 14:31 | 6547208 HardlyZero
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On that "Four Scenarios" chart, when you see Shemitah, then it will get interesting.

Hope they keep it coming and going, and throw in some competitor swirl-o-grams.

Mon, 09/14/2015 - 13:20 | 6546762 ejmoosa
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Blame China all you want.  The real data for the US has been pointing at a recession for the last twelve months.

Mon, 09/14/2015 - 13:45 | 6546910 Question Reality
Question Reality's picture

Years may be more accurate.

Mon, 09/14/2015 - 15:51 | 6547673 moneybots
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"Blame China all you want.  The real data for the US has been pointing at a recession for the last twelve months."

 

If you subtract the debt, the real data for the U.S. is that we never got out of the last recession.

 

 

Mon, 09/14/2015 - 16:25 | 6547894 Gambit
Gambit's picture

Dumb fucks, China is in a down trend because there is no fucking demand for their product from the EU and the US.  Meaning the consumers in the West cannot consume anymore, becuase credit is maxed out, they dont have a job or have a low paying job or other expenses such as Taxes/health care are fucking them in every hole imaginable or that they are getting .00001% on their savings.  China crashing is the effect, the cause is the recession in the Developed Countries.   Most of these retarded "analyst" are incable of connecting the dots and thinking critically.   Worthless cunts.   

Mon, 09/14/2015 - 13:22 | 6546768 Turin Turambar
Turin Turambar's picture

This is new news for the sheeple.  In hindsight, it'll look prophetic.  Trying to get out in front of the really bad stuff, so when it breaks, Citi can point to this notice as proof that they were out in front and trying to warn people.  SMH

Mon, 09/14/2015 - 13:23 | 6546777 Temporalist
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People on ZH have been saying this for years and Ron Paul and Peter Schiff and Marc Faber...but nobody could have seen it coming.

Mon, 09/14/2015 - 13:24 | 6546784 gaoptimize
gaoptimize's picture

OT: Hoping for uncessored Femen pictures from Paris at Zerohedge this morning.

Mon, 09/14/2015 - 13:27 | 6546809 pods
pods's picture

eek, just googled that.

There is good naked, and bad naked.

-Jerry

Mon, 09/14/2015 - 13:25 | 6546792 VonSalza
VonSalza's picture

This global recession will not stand, Man. Central banksters need to print moar monies.

Mon, 09/14/2015 - 13:26 | 6546797 pods
pods's picture

At least the upcoming war coverage will push this news of our re-depression economy to the back page?

"Always look at the bright side of your life."  <whistle along>

pods

Mon, 09/14/2015 - 15:26 | 6547518 undertow1141
undertow1141's picture

"For life is quite absurd
And death's the final word
You must always face the curtain
with a bow
Forget about your sin - give the
audience a grin
Enjoy it - it's your last chance
anyhow."

Mon, 09/14/2015 - 13:29 | 6546819 vote_libertaria...
vote_libertarian_party's picture

Well that explains why we are within 8% of all time highs...uhhh...wait...what???

Mon, 09/14/2015 - 13:35 | 6546848 Mises Sense
Mises Sense's picture

Well, Gordon Gekko and Wall Street do not seem to agree. Citibank used to be like nuclear Vipro Markets in saying that all is good. In all honesty, look at their stock price - it screams that these people are not in control.

Mon, 09/14/2015 - 13:38 | 6546866 Mises Sense
Mises Sense's picture

I was in China a month ago. People there think that the mighty government will save them all. In these underdeveloped countries people still are a bit naive.

Mon, 09/14/2015 - 13:43 | 6546896 nyse
nyse's picture

Aren't we all...

Mon, 09/14/2015 - 13:47 | 6546921 Question Reality
Question Reality's picture

They learn from the sultans of naivety - U.S. Citizens.

Mon, 09/14/2015 - 14:00 | 6547009 Element
Element's picture

Same is true of every major western country. But ignorance really is bliss, and besides, the things people worry and fester about on zh are mostly complete bullcrap anyway. There are real problems, yes, but those are not the ones that generally get air time. They would be much too boring.

 

Mon, 09/14/2015 - 13:39 | 6546873 Professorlocknload
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Recession in an election year? The hell you say.

Mon, 09/14/2015 - 13:42 | 6546893 richiebaby
richiebaby's picture

A global recession is the best case scenario

Mon, 09/14/2015 - 13:51 | 6546940 Question Reality
Question Reality's picture

They dug it deep this time. The only question is whether the depression is deeper for economics or the ditch to bury the bodies of the coming global war.

Mon, 09/14/2015 - 14:29 | 6547226 HardlyZero
HardlyZero's picture

A crash or two might wake up some Kraken or Shemitah, then a simple global recession might be difficult to pull off.

Mon, 09/14/2015 - 13:46 | 6546918 agstacks
agstacks's picture

So much for the Shemitah, eh guys? 

Mon, 09/14/2015 - 16:41 | 6547982 roadhazard
roadhazard's picture

  +1 

Those clowns selling that crap Need to have there noses rubbed in it. Jade Helmers too.

Mon, 09/14/2015 - 13:47 | 6546923 JJdog
JJdog's picture

Just setting up for QE10. 

Mon, 09/14/2015 - 13:52 | 6546950 Question Reality
Question Reality's picture

At least printing machine manufactures are getting boosted sales!

Mon, 09/14/2015 - 13:49 | 6546932 xrxs
xrxs's picture

The only thing that can save the global economy is Gartman making this his base case as well.

Mon, 09/14/2015 - 14:12 | 6547108 Banker Buster
Banker Buster's picture

Everyone give a round of applause to the Federal Reserve.  Come on now, lets hear it, clap those hands.  The Fed has worked so hard to make this miracle recovery possible.  /s

Memo going around at the fed is to not leave the building without a phone book taped to their body and exercise caution around nail guns.  lol

 

Mon, 09/14/2015 - 15:29 | 6547543 undertow1141
undertow1141's picture

I always have this image in my head of the FED driving the economy. Yellen in the drivers seat turned round gabbing with the other fed members in the back seat. NObody steering.

Mon, 09/14/2015 - 15:48 | 6547655 moneybots
moneybots's picture

"Citi Just Made "Global Recession In 2016" Its Base Case Scenario"

 

Citi has their coming derivative losses covered by the tax payers, so that is all that really matters to Citi.

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