Citigroup Lowers China, Global GDP Growth Forecast

Citigroup lowers China, Global GCP growth forecast
Citigroup chief economist Willem Buiter. Photographer: Ramin Talaie/Bloomberg

Citigroup Inc. cut its outlook for China’s 2010 economic expansion by a percentage point after the world’s third-largest economy showed signs of slowing at the end of the second quarter.

China’s gross domestic product growth forecast was lowered to 9.5 percent from 10.5 percent, Citigroup’s biggest one-month reduction in the country’s outlook since late 2001, the bank said in a report. It also trimmed its full-year global growth projections for 2010 and 2011 as well as for the U.S. and emerging markets, while reducing Japan’s for next year.

“We have become somewhat less optimistic on near-term growth prospects,” Citigroup said in the report led by Chief Economist Willem Buiter yesterday. “We think the more plausible risk is of an extended period of relatively sluggish industrial country growth over the next few years.”

The Citigroup document came as Federal Reserve Chairman Ben S. Bernanke said yesterday the U.S. economic outlook remains “unusually uncertain.” Europe’s debt crisis and China’s steps to curb property prices have fueled concern that global economic growth will slow.

The bank said China will grow at an 8.8 percent rate next year, 0.5 percentage point lower than previously forecast, and inflation will reach 3.6 percent in 2011, 1 percentage point lower than its earlier outlook, according to the monthly report, which was last published on June 23.

‘Inflation Is Cooling’

“Inflation is cooling along with the economy,” wrote Minggao Shen, head of China research at Citigroup, and Ken Peng, a Beijing-based economist. “We downgrade our growth and inflation forecasts on much weaker momentum.”

China expanded 10.3 percent in the second quarter, easing from the 11.9 percent increase in January-to-March period, the statistics bureau said on July 15. The inflation rate eased to 2.9 percent in June from 3.1 percent in May. Figures this month showed property prices in 70 Chinese cities fell 0.1 percent in June from May, snapping 15 months of gains, according to a survey by the National Development and Reform Commission.

Deutsche Bank AG forecast China’s economy will grow 8.6 percent in 2011 from an expansion of 9.6 percent this year, according to a report yesterday.

U.S. Forecast Cut

Citigroup forecast global GDP will rise 3.7 percent this year and 3.3 percent in 2011, trimming its projections by 0.1 percentage point each. The U.S. 2010 forecast was reduced by 0.4 percentage point to 2.8 percent, and its 2011 outlook was lowered by 0.2 point to 2.6 percent. Japan’s GDP in 2011 will be 1.9 percent, also 0.2 point slower than previously forecast.

The bank cut its forecasts for growth in emerging markets to 6.6 percent this year and 5.8 percent in 2011.

While lowering its outlook for GDP, Citigroup said that a reversal in the world recovery is unlikely and an increase in company earnings for 2011 is achievable.

“We think that current fears of a global double-dip are overdone,” Robert Buckland, an equity strategist at Citigroup in London, wrote in the document. “The recent setback in global equities represents a buying opportunity.”

The MSCI World Index has fallen 7 percent this year, reducing the price-to-earnings ratio to 15.7 times from about 21.6 times at the start of the year.

Securitized products may offer attractive risk-weighted returns or higher-yielding safe havens from volatility in the broader market, according to the report.

“The short and defensive nature of the market continues to attract cash investors seeking to pick up a positive spread to treasuries and agencies while remaining relatively short,” Citigroup analysts led by Mary E. Kane said.

Citigroup also forecast that while a correction in the dollar continues, there are “simply not enough fundamental differences between G-10 currencies to warrant strong trends.”

The lender’s outlook for the next three months is for the euro to trade at $1.31 from $1.275 yesterday, the pound to be $1.49 from $1.52 yesterday and the yen to trade at 87, unchanged from yesterday, the report said.

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