Monday, November 29, 2010

Another View For Economies & Financial Markets In 2011 & Beyond

As advertised on Barron's, but more in details here, Citi came with their own view for 2011 and beyond, with brief summary outlined below:
2011 is likely to be another year of strong but uneven global growth. We forecast global GDP growth of about 3.4% in 2011 and 3.8% in 2012 — somewhat below the 2010 pace (3.9%) — but still above the 1999-08 average of 2.9% YoY. The expansion will remain very uneven, more so than in prior recoveries. EM Asia should again outperform as the multi-decade transformational booms in China and India continue, not just in 2011 but for many years after. Industrial countries overall should record only modest growth in 2011 because of private sector deleveraging and, in many cases, fiscal consolidation. Divergences are likely to remain acute in the euro area, with continued above-trend growth in Germany but — even after severe recessions — little or no growth in the periphery countries. Global imbalances should stay high.

The Fed, ECB and BoJ are all likely to keep policy rates on hold in 2011. We have delayed our forecast for the first ECB hike into 2012. The Fed probably will keep rates on hold until well into 2012, with the BoJ on hold until at least late 2013. Only a few industrial countries are likely to hike rates in 2011: those with high growth (e.g. Australia, Sweden, Switzerland) and — amidst sticky inflation — perhaps the UK. By contrast, with strong growth and rising inflation pressures, tightening should be widespread across EM in Asia and LatAm. We expect China to hike by a further 125bp by end-2011 and more thereafter.

Chief Economist Essay by Willem Buiter ... There is no absolutely safe sovereign — ‘rates analysis’ has to be done together with ‘credit analysis’. Ireland’s bailout package will buy some time, but does not address its fundamental solvency issues. The Irish case also highlights the need for an EA/EU wide bank resolution regime. Portugal is likely to access the EFSF soon, in our view.

Citi’s market strategists have generally looked for reasonable returns from risk assets over the last year and remain reasonably constructive for the coming year — albeit emphasizing the need to be selective amidst uneven global growth.

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