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Tags: Citi | Buiter | Recession | Economy

Citigroup's Chief Economist Willem Buiter: World to Plunge Into Recession Next Year

Citigroup's Chief Economist Willem Buiter: World to Plunge Into Recession Next Year
(Dollar Photo Club)

By    |   Wednesday, 14 October 2015 07:20 AM

The global economy is likely to fall into recession next year as emerging nations struggle with tightening monetary policy, according to Citigroup's Chief Economist Willem Buiter.

Buiter told CNBC that China, Brazil and Russia are edging towards an economic downturn.

"(The slowdown) is not confined to China by any means," he said.

"The policy arsenal in the advanced economies is unfortunately very depleted, debt is still higher in the non-financial sector than it was in 2007. So we are really sitting in the sea watching the tide go out and not really able to respond effectively to the way we should."

Buiter predicts that global growth, at the market exchange rate, will fall below 2 percent and will lead to rising unemployment in many of the emerging markets, as well as a number of the advanced economies.

Buiter looks at the world landscape and sees an economy performing substantially below potential output, which he uses as the general benchmark for the idea of a global recession.

He has said the chances of a global recession in 2016 are growing.

"We think that the evidence suggests that the global output gap is negative and that the global economy is currently growing at a rate below global potential growth. The (negative) output gap is therefore widening," Buiter said in a note to clients.

"From an output gap that was probably quite close to zero fairly recently, continued sub-par global growth is likely to put the global economy back into recession, if indeed the world ever fully emerged of the recession caused by the global financial crisis," he said.

“Actual global output growth, although positive . . . is already below likely potential global output growth, which we estimate at 3%, meaning that the output gap is widening. Another year of sub- potential growth would therefore imply that the world economy would probably be back in recession according to both our criteria,” he said.

Many prominent economic experts agree with him.

For example, Carlyle Group LP’s David Rubenstein said the U.S. will probably enter a recession in the next three years.

"At some point in the next year or two or three, you can expect a recession," Rubenstein, the co-founder of Washington- based Carlyle, said recently in a Bloomberg television interview. “We tend to have recessions every seven years, more or less, in the U.S. since World War II. It’s inevitable at some point.”

The U.S. economy will probably grow 1 percent to 2 percent this year, Rubenstein said. It expanded in the second quarter more than economists had previously estimated amid bigger gains in consumer and business spending. Gross domestic product rose at a 3.7 percent annualized rate, government figures showed in August, exceeding all estimates of economists surveyed by Bloomberg.

"It’s not here now,” Rubenstein said of recession signs. “It’s going to be modest growth for a while."

But some wonder if all the doom and gloom isn't a self-fulfilling prophecy.

"If we're not careful, we're going to talk ourselves into a recession," Pierre Sarrau, deputy chief investment officer, multi-asset strategies, at Blackrock in London, told Reuters.

"There are signs we're returning to growth. It's a highly uncertain environment though."

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StreetTalk
The global economy is likely to fall into recession next year as emerging nations struggle with tightening monetary policy, according to Citigroup's Chief Economist Willem Buiter.
Citi, Buiter, Recession, Economy
529
2015-20-14
Wednesday, 14 October 2015 07:20 AM
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