Citi's Economics team downgraded global growth expectations once again, expecting 3.0% this year (versus 4.0% last year) with more aggressive downgrades next year to only 2.9% (from 3.2% expectations last month and 3.7% two months ago). Growth revisions were downgraded for every major global economy as expectations move with Goldman's coincidentally-timed discussion of stagnation (also tonight) with advanced economies cut more than developed though Eastern Europe saw the most significant reductions. They note that 'the recent pace of GDP forecast downgrades is among the greatest of the last ten years' and extends the recent run of lower forecasts to four months-in-a-row. In a secondary note, Willem Buiter and team also pour cold water on market expectations for the EFSF pointing out, as we have done for a few weeks now at every suggestion, that all the different options have their shortcomings and are unlikely to be implemented quickly.
From Citi's September 2011 Global Economic Outlook and Strategy:
Global growth prospects continue to deteriorate quickly, both for advanced economies and emerging markets.
This month, we are again cutting our 2011-12 GDP growth forecasts for many countries, including the Euro Area, UK, Japan, US and Canada, with a modest downgrade for China and sharper cuts for Eastern Europe, Singapore, Hong Kong and South Africa.
We expect early sovereign debt restructuring in the Euro Area, and for the Euro Area overall to slip back into recession in coming quarters. The following table outlines progress so far on the initial increase:
Against this backdrop, Citi’s Macro Strategy team are cautious on risk assets and bullish core fixed income. Citi equity strategists believe that markets are oversold, but that stock prices are unlikely to move convincingly higher until there are clearer signs of stability in economic activity and profits growth. Citi rate strategists expect lower yields and flatter curves in core EMU markets and the UK. Citi FX strategists expect the USD and JPY to gain.