BANGALORE (Reuters) - UBS and Citigroup lowered their forecast for global growth, with sharp reductions to its euro zone view and more modest cuts for China, but ruled out the likelihood of a recession for now.
The cuts are the latest in a series of downgrades to global growth forecasts by major securities firms. Last week, Morgan Stanley cut its global growth view and said the United States and the euro zone are “dangerously close to recession.”
UBS slashed its global gross domestic product (GDP) growth forecast for 2012 to 3.3 percent, while Citigroup cut its global GDP growth view for 2011 to 3.1 percent from 3.4 percent, and for 2012, to 3.2 percent from 3.7 percent.
Citigroup, however, said it does not currently expect recessions in the major economies as this slowdown in economic growth is not enough to reverse global profits.
For advanced economies, Citigroup cut its growth forecast to 1.4 percent from 1.8 percent for 2011, and to 1.7 percent from 2.2 percent for 2012.
“We do expect advanced economy growth will remain sluggish to end-2012 at least, with rising unemployment,” the brokerage said in a note to clients dated August 24.
UBS maintained its 2011 GDP growth view for the euro zone at 1.8 percent, but lowered its forecast for 2012 by a full percentage point to 1 percent.
The brokerage said its 2012 growth forecast cut for the euro zone was based on lower expected growth for the United States, Asia and Eastern Europe, as well as the impact of the latest market turmoil on sentiment and credit availability.
In a separate note, Credit Suisse said it saw a 50 percent likelihood of avoiding a global recession as emerging markets account for 49 percent of the global GDP, global monetary policy remains “exceptionally loose” and corporate balance sheets are strong.
Credit Suisse expects renewed quantitative easing (QE) in the U.S. and UK, and a stepped up QE in Japan by year-end.
Both UBS and Citigroup now expect China’s economy to grow at 9 percent this year, lower than their previous projections of 9.3 percent and 9.2 percent, respectively.
“Economic activity (in China) so far this year was slightly stronger than we had anticipated, but the global slowdown may point to downside risks in H2,” Citigroup said.
Citigroup does not expect an interest rate hike this year in the world’s second largest economy, but sees faster yuan appreciation.
Earlier this month, Deutsche Bank cut its gross domestic product forecast for China, a major growth engine for the world economy.
For details of 2012 GDP growth forecast changes, please see table below:
GDP FORECAST (All values in %)
New Old New Old New Old New Old New Old
Citigroup 3.2 3.7 0.6 1.2 9.0 - 2.1
Reporting by Maneesha Tiwari and Tenzin Pema in Bangalore; Editing by Saumyadeb Chakrabarty