U.S. Economic Growth Estimates Cut at Citigroup on Political, Fiscal Risk
Aug. 19 (Bloomberg) -- Erik Ogard, director of multi-strategy investments at Russell Investments, talks about U.S. stocks. Ogard also discusses the outlook for the U.S. economy and Federal Reserve monetary policy. He speaks from Seattle with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Aug. 19 (Bloomberg) -- Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York, discusses the outlook for the U.S. economy and Federal Reserve policy. Kasman speaks with Maryam Nemazee and Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
The U.S. economy may expand less than previously forecast in 2011 and 2012 because of potential “political paralysis” and fiscal tightening steps, Citigroup Inc. wrote in a report.
The brokerage cut its 2011 gross domestic product growth forecast to 1.6 percent from 1.7 percent and lowered its 2012 GDP growth estimate to 2.1 percent from 2.7 percent, Steven Wieting and Shawn Snyder, analysts at Citigroup, wrote in a report dated yesterday. They also trimmed their estimates for the Standard & Poor’s 500 Index’s earnings-per-share this year to $97 from $98, and to $101 from $105 next year.
The positioning of the economy and pace of recovery so far “do not suggest a new cyclical recession, rather an inability to mount a full recovery,” they wrote. “We see corporate profits growing at a quite low single-digit pace in coming years even with the assumption of continued economic expansion.”
The S&P 500 slumped 4.5 percent to 1,140.65 yesterday as a Philadelphia-area manufacturing index sank to the lowest since 2009, jobless claims and consumer prices rose, and existing home sales slid. The S&P 500 has tumbled 16 percent from its April 29 high, matching the retreat between April 23 and July 2, 2010, previously the biggest contraction of the bull market that began in March 2009.
Citigroup’s analysts said they are concerned about a possible failure of parties to agree on reducing the deficit.
“Both tax increases and spending cuts larger than we assume would be automatically triggered in the absence of bipartisan agreement,” the analysts wrote. “In the absence of action, very sharp tightening steps would occur in 2013 and would be felt in financial market expectations through 2012.”
To contact the reporter on this story: Richard Frost in Hong Kong at rfrost4@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
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