Citigroup Cuts Global Growth Forecasts — Again

Economists at Citigroup have again cut their global gross domestic product forecasts for 2011 and 2012 as growth prospects “continue to deteriorate quickly.”

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At a global level, the bank's Citi Investment Research & Analysis unit predicted on Thursday that growth will slow to 3 percent this year and 2.9 percent in 2012. Two percent global growth is seen by the International Monetary Fund 43048771) and World Bank as the classification for global recession.

The cut marks Citi's second in less than a month. It last downgraded the global economy on September 6.

Citi downgraded its outlook for the United States, Europe, Japan, Canada and the UK individually. It cut its view on China's 2012 growth rate, to 8.7 percent from 9 percent. The financial services firm expects interest rates to remain at their current, low levels as a result.

“Interest rates are likely to stay low and negative in real terms, for a long period in the main advanced economies,” said Citi Chief Economist Willem Buiter. That means the European Central Bank is likely to cut rates, while the US Federal Reserve will probably need to see significant downside risks before doing anything more than changing its language to guide interest rate expectations lower, according to Buiter.

“Renewed expansion of the Fed’s balance sheet is unlikely unless deflation becomes a clear danger,” said Buiter, who expects a more aggressive response from the Bank of England, which he predicts will unleash a second round of quantitative easing in the next month or two.

Monetary easing in the emerging world is also in the cards, according to Buiter, who expects credit rating agencies such as Moody's and Standard & Poor's to remain on the offensive.

“We expect more sovereign ratings downgrades among Euro Area countries in the next 3-6 months, including Italy, Spain, Greece, Portugal and Cyprus," Buiter said.

Buiter said the Citi equity strategy team is cautious on risk assets and bullish on core fixed income, while the Citi foreign exchange team likes the dollar and yen.