Policy Disclosure / Fav Links / Free Site Listing

Dec 3, 2007

Global economies resilient amid US financial turmoil: Citigroup

SINGAPORE: The global economy will see a slowdown in growth next year but not a collapse, says banking giant Citigroup. It says the global economy will be able to withstand current stresses from the US housing sector, high oil prices and a weak US dollar. At the same time, Citigroup expects growth in emerging markets like Asia to remain strong. Amid the US housing crisis and financial turmoil, Citigroup is positive that the global economy will remain resilient. In its outlook for 2008, the banking giant says that many important emerging economies have found the formula for sustaining rapid growth, and over the years, they have also reduced their vulnerability to external financial shocks. But Citigroup notes that inflation could be a concern for Singapore. Citigroup Global Markets' chief economist, Lewis Alexander, said: "With the Federal Reserve expected to ease policy substantially, that is gonna have pressure on those countries that have close links to the US dollar, including places like Singapore where, because of the need to keep their exchange rates under control, they'd probably have to lower interest rates when the US does as well." "That does raise risks for economies like Singapore that may have to lower rates and potentially generate more inflationary pressures," he said. Citigroup is expecting the Federal Reserve to continue cutting rates. It sees a 25 basis point cut later this month, with another slash of 50 points in the first quarter of 2008. The banking giant is forecasting inflation in Singapore to average 3.8 percent next year, in line with the government's 3.5-4.5 percent projection. For the first six months, though, inflation could go as high as 5% due to higher energy, food and labour costs. The full extent of inflationary pressures in Singapore will be more visible next year, with the Consumer Price Index (CPI) reflecting the surge in the housing component. CPI in October rose to 3.6 percent on-year. However, Citigroup says inflationary pressures should come off in the second quarter of 2008. On the US economy, Citigroup says it does not expect it to go into recession because global slowdown will dampen increase in energy prices. Citigroup's Lewis Alexander said: "The US economy is going to slow fairly sharply over the next couple of quarters, partly due to the housing problems as well as high energy prices. "But we think that it is actually going to recover in the second half of next year. That's important for Asia because the US is an important source of demand for the region." Citigroup expects the Singapore economy to grow by 8 percent this year, which is on the top end of official forecast of 7.5-8 percent. For next year, it expects the Singapore economy to expand by 6.2 percent

0 comments: