26 November 2012 ¦ 72 pages Global
Global Economic Outlook and Strategy
Prospects for Economies and Financial Markets in 2013 and Beyond
In this “Prospects” edition, Citi’s research team presents updated forecasts for economies, policy, commodity prices and sovereign ratings around the world for 2013 and beyond, along with Overview essays on private sector deleveraging; the EMU crisis; the transition of emerging markets to a new growth model; political risks; monetary policies; and longrun projections for the size of major economies. We expect that 2013 will be another year of modest global growth, with sizeable divergences between regions and countries. Our base case is for global growth of 2.6% in 2013 and 3.1% in 2014 (at current exchange rates), a little below consensus and IMF forecasts, after 2.5% in 2012. Nevertheless, we expect faster expansion subsequently, with global growth of 3?%-4% YoY in 2015-17. Major central banks probably will keep policy loose near term, with tightening not until 2015 in the US and rather later in Europe and Japan. China’s economy is transitioning to a slower growth path of about 7% per year, with more emphasis on consumer spending. Even so, China will remain a global powerhouse, directly accounting for about a third of global growth in 2013-17e. In 2013, investment spending in China will probably exceed investment in the US and euro area combined. But, in coming years, the global expansion will become more broad-based across countries and economic sectors, with rapid growth in consumer spending and investment across many other emerging markets as well. Moreover, provided fiscal tightening is not abrupt, US growth is likely to rise to 3%+ from late 2013 as constraints from weak balance sheets and poor credit availability ease. The euro area and UK economies will remain weak in 2013e and beyond. We still expect Grexit over the next 12-18 months. We also now include in our base case sovereign debt.