Bloomberg News

Global Growth Forecasts Cut by Citigroup, UBS on Europe Slump

November 29, 2011

(For more on the euro-area crisis, click on EXT4.)

Nov. 29 (Bloomberg) -- Citigroup Inc. and UBS AG cut their forecasts for global economic growth in 2012, citing the impact of Europe’s debt crisis and the region’s looming recession.

Citigroup reduced its 2012 prediction for global expansion by 0.3 percentage points to 2.5 percent, economists including Willem Buiter in London wrote in an e-mailed note to clients yesterday. That’s the sixth consecutive month the bank lowered its 2012 estimate for gross domestic product. UBS now predicts 2.7 percent growth next year instead of 3.1 percent.

“In terms of global growth, we expect that 2012 will be a modest mid-cycle slowdown, with no rerun of the sharp recession of 2009,” the Citigroup economists wrote. “We expect China’s growth to slow markedly, but global growth will still be Asia- led. The euro area is falling back into recession and only modest growth is likely for the U.S.”

Europe’s debt turmoil and recession will prompt the European Central Bank to cut its benchmark interest rate from 1.25 percent to a record-low 0.5 percent next year, Citigroup said. Data today showed European confidence in the economic outlook dropped more than economists forecast in November as finance ministers meet in Brussels for talks on a crisis that is spreading from the periphery to the region’s core countries.

Euro-Area Outlook

UBS economists including London-based Larry Hatheway and Paul Donovan also lowered estimates for the euro area. They wrote in a note yesterday that the region’s economy will shrink 0.7 percent in 2012, compared with a previous estimate of 0.2 percent growth.

Citigroup cut its prediction for global growth in 2013 by 0.2 percentage points to 3.1 percent. The bank lowered its 2012 forecast for euro-area GDP and now sees the economy shrinking 1.2 percent, compared with an estimate of a 0.3 percent contraction published last month.

The U.S. bank said its central forecast assumes that the euro-area debt crisis will escalate, prompting a “strong policy response” from ECB and the region’s political leaders to prevent a breakup of the single currency.

--Editors: Craig Stirling, Fergal O’Brien

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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