Citi: Brace for global recession

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From the excellent Willem Buiter at Citi:

The growing threat to the global outlook rests on poor fundamentals, which include the pre-existing fragilities related to the structural and cyclical slowdowns in China and its unsustainable currency regime, broken EM growth models, excessive leverage across many countries and sectors, and rising regional risks (Brexit) and geopolitical risks (including in Russia, Turkey and Syria, the South China Sea, and North Korea).

These fundamental concerns are aggravated by a crisis of confidence that is in part fuelled by a growing worry that, should conditions deteriorate, they may not elicit an effective policy response. The main ‘game changers’ in our view are the emerging belief that even the US economy is no longer bullet-proof and that policymakers (in the US and elsewhere) may not be there to come to the rescue of their own economies, let alone the world economy, by propping up asset prices and aggregate demand. It is likely, in our view, that global growth will this year once again underperform (against long-term trends and previous year forecasts). Citi’s latest forecasts are for global growth of 2.5% in 2016 (based on market exchange rates and official statistics) and around 2.2% (adjusted for probable Chinese mismeasurement). But in our view, the risk of a global growth recession (growth below 2%) is high and rising.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.