UBS, Citi cut global growth view, rule out recession

UBS, Citi cut global growth view, rule out recession

Bangalore: UBS and Citigroup lowered their forecast for global growth, with sharp reductions to its euro zone view and more modest cuts for China, but ruled out the likelihood of a recession for now. The cuts are the latest in a series of downgrades to global growth forecasts by major securities firms.

Last week, Morgan Stanley cut its global growth view and said the United States (US) and the euro zone are “dangerously close to recession."

UBS slashed its global gross domestic product (GDP) growth forecast for 2012 to 3.3%, while Citigroup cut its global GDP growth view for 2011 to 3.1% from 3.4%, and for 2012, to 3.2% from 3.7%. Citigroup, however, said it does not currently expect recessions in the major economies as this slowdown in economic growth is not enough to reverse global profits.

For advanced economies, Citigroup cut its growth forecast to 1.4% from 1.8% for 2011, and to 1.7% from 2.2% for 2012. “We do expect advanced economy growth will remain sluggish to end-2012 at least, with rising unemployment," the brokerage said in a note to clients dated 24 August.

UBS maintained its 2011 GDP growth view for the euro zone at 1.8%, but lowered its forecast for 2012 by a full percentage point to 1%. The brokerage said its 2012 growth forecast cut for the euro zone was based on lower expected growth for the US, Asia and Eastern Europe, as well as the impact of the latest market turmoil on sentiment and credit availability.

In a separate note, Credit Suisse said it saw a 50% likelihood of avoiding a global recession as emerging markets account for 49% of the global GDP, global monetary policy remains “exceptionally loose" and corporate balance sheets are strong. Credit Suisse expects renewed quantitative easing (QE) in the US and United Kingdom (UK), and a stepped up QE in Japan by year-end.

China growth to slow

Both UBS and Citigroup now expect China’s economy to grow at 9% this year, lower than their previous projections of 9.3% and 9.2%, respectively. “Economic activity (in China) so far this year was slightly stronger than we had anticipated, but the global slowdown may point to downside risks in H2," Citigroup said.

Citigroup does not expect an interest rate hike this year in the world’s second largest economy, but sees faster yuan appreciation.

Earlier this month, Deutsche Bank cut its GDP forecast for China, a major growth engine for the world economy.