Citi: Global Growth Likely 2%; Recession Risks Are Rising

In a most pointed research note coming out of Citi in a long time, they assert true Chinese growth, ex fraud, is probably in the ballpark of 2%.

Let that sink in.

They feel global recession is something that is entirely possible and that it is the duty of central banks to remain vigilant and to fight back the pangs of deflation through easing.

However, given the current environment, easing is something not likely to occur.

“In our view, global growth is at a highly precarious point, after 2-3 years of relative calm,” the team of economists led by Willem Buiter said in their note likely to exacerbate concerns about the world’s ability to withstand a pause in China’s stunning economic growth.

“The long-standing fragilities in the world economy relate to the structural and cyclical slowdowns in China and its unsustainable exchange rate regime, the excessive level of debt across many countries and sectors and ongoing regional and geopolitical uncertainty,” the economists said. The economists have accordingly revised their forecast for growth this year in advanced economies from a 2.4 percent back in January 2015 to 1.6 percent currently, and warned the 2016 figure “could well be lower.”

When they adjust for what they call “true Chinese growth,” the Citi team finds that global growth might have been as low as 2 percent year-over-year in the final quarter of 2015. That is the lowest since the eurozone recession of 2012-2013, and if growth remains at such depressed levels, it would qualify as a global recession according to their measures:

“To avoid a recession and to avoid a greater slowdown in potential output growth than is warranted because of worsening demographics, the world needs a global version of what we would call ‘Abenomics plus,'” which in Citi’s terms would be easy monetary policy coupled with fiscal stimulus and structural reform that would include “material deleveraging.”

But, given their recession call, the team doesn’t believe these policy measures will actually occur as fiscal stimulus faces high political hurdles.

“Even though we suspect that ongoing economic weakness and limited options for incremental monetary easing will probably reinforce the trend towards modest fiscal easing, we do not foresee a shift to decisive fiscal easing,” they somberly conclude.

As such, markets are on their own, naked and exposed to the easterly winds of doom.