We remain relatively upbeat on the global outlook, and again make more forecast upgrades than downgrades across major economies. Since the last GEOS, we have made significant upgrades to our 10-11 GDP growth forecasts for the US, UK, Brazil, India, Mexico, Nigeria, Norway, Switzerland and Turkey. However, recovery will remain uneven, with strong growth in China and much of the rest of Asia, but modest recovery in the US and, notably, Europe.
As economic growth picks up and financial conditions improve, many central banks will withdraw emergency financial support and hike rates over the next 12-18 months. However, like the recovery, the pace and timing of central bank action will be uneven.
Citi’s strategists continue to expect credit spreads to fall, albeit more slowly than in recent quarters, but caution that government bond yields are likely to rise as QE programs end, growth recovers and fiscal deficits stay high. Securitized products sectors across the board remain attractive to the corporate unsecured sectors. Citi’s equity strategists remain positive on global equities, and our top-down prediction is for a 65% increase in global EPS over the next two years, versus the current analysts’ consensus of a 56% earnings recovery. Even if global equities de-rate by a typical 25% (partly to reflect the adverse impact of rising interest rates) then that would imply a 24% increase in global equities over the next two years.
Citi’s FX expect another leg to the generalized bear market in the USD this year, with the greatest gains likely to come from CHF, NOK and SEK.
Download Citi Research’s Global Economic Outlook and Strategy (Jan 2010)
Read Related Post
You must log in to post a comment.