Leading economists have slashed their forecasts for global growth ahead of a key meeting on Friday of the world’s central bankers and policymakers.
6:00AM BST 26 Aug 2011
UBS and Citi followed Morgan Stanley in lowering their outlook this year to 3.3pc and 3.2pc from 3.8pc and 3.7pc respectively. The world economy had been expected to grow at around 4pc just a few weeks ago.
The downgrades came as markets dipped on dwindling hopes that Ben Bernanke, chairman of the US Federal Reserve, would signal more stimulus in his speech on Friday at Jackson Hole, Wyoming.
Few now expect him to launch a third round of quantitative easing (QE) on top of the $2.3 trillion already completed to revitalise the recovery. This time last year, Mr Bernanke used his Jackson Hole speech to prepare markets for more QE, which helped lift stock markets and stimulate growth.
The FTSE 100 fell 1.4pc to 5,131.10 on Thursday, ending three days of gains, as talk also turned to a German short-selling ban. Poor news out of the US did not help. Weekly jobless claims rose by 5,000 to 417,000 – about 10,000 more than expected. Wall Street slipped 1.3pc in early trading.
Willem Buiter, Citi’s chief economist, said this time is different: “[The Fed is] not going to do anything. There are circumstances in which we will get more QE, but inflation is rising. Unemployment is increasing, yes, but the economy is still growing. There is nowhere near enough bad news to overcome the significant opposition within the [Fed]. Last time there were deflation fears, that’s why they did it.”
Morgan Stanley has warned that the US and the eurozone are close to recession and Credit Suisse said there is only a 50pc chance that a global slump would be avoided.
Citigroup does not currently expect recessions in developed markets but does expect unemployment to continue rising. For advanced economies, it cut its growth forecast to 1.4pc from 1.8pc.
- Indications: U.S. stock futures tread water ahead of Bernanke (marketwatch.com)