Wall Street economists peg global growth at around 4 percent in 2022

Inflation remains a challenge this year but is “more on a downward rather than an upward trajectory,” a Wall Street economist told TURAN’s Washington correspondent during a briefing last week.

Specifically, at the end of 2022, Citibank's global markets research team expect 3.9 percent of inflation by their global index.

Speaking at a virtual press briefing organized by the New York Foreign Press Center, Nathan Sheets, Citibank's Global Chief Economist, laid out three factors and rudiments of their view:

“One. we expect some approval in supply chains… Two, our sense is that commodity prices are likely to come off the boil this year. Specifically, we see improving both supply and demand conditions for energy, and that’s likely to be very helpful, again, in supporting a decline in inflation... Third factor that’s likely to be in play here is the central bank tightening.”

A number of key countries, including the United States, a number in Latin America, some in Europe, are going to see central banks hike rates, and that should also help contain the inflationary pressures, Sheets explained.

IMP last week warned of ‘multiple challenges’ to global economic recovery as China and US outlooks downgraded amid concerns over higher inflation. The U.S. Federal Reserve signaled that it will begin a series of interest-rate hikes in March.

Federal Reserve will likely pursue policy tighter than what we thought was imaginable "even three or four months ago", Sheets predicted.

Citi bank expects that inflation fueled by supply chain pressures will headline challenges for central banks world over in 2022. "If  inflation proves to be somewhat more stubborn, which is a very significant risk, then the Fed’s going to have to move more frequently" Sheets added.

The definition of more frequently is an "open issue". "I think at a minimum it's fair to say every meeting is going to be live, meaning they will be considering the option of hiking rates at every meeting for the foreseeable future," he added.

The familiar low inflation world from 10 years pre-pandemic “is gone”, as Sheets put it. "We've moved into another world where inflation is higher, and the Fed is shifting gears."

The outlook, the expert said, is looking sunnier for developed economies. The US, the Euro bloc and the UK are all moving at a 3.5 to 4.5 per cent pace - "substantially above their trend growth rates".

Citi's outlook for emerging markets: "mixed", "challenging". Emerging markets in the year ahead “is more mixed than what we see for the developed markets.” Sheets said.

Much of the "extraordinary valuations" in markets are riding on liquidity flows from central banks and not necessarily being driven by fundamentals.

“This has shown up in the extraordinary valuations that we’ve had in things like the tech sector – and yes, some of that is due to corporate profits…” Matt King, global markets strategist at Citi Research, said.

Pointing to a decade of research, King said all of his "favorite" fundamental relationships have broken down.

When asked whether global economy will face any side effects should the situation in Eastern Europe deteriorate further, King told TURAN’s correspondent that when it comes to geopolitical risks, markets often don’t handle these sorts of geopolitical risks very well.

“They find it difficult to price in an appropriate risk premium ahead of time.  And even if the risks materialize, often conventionally we might think of it through things like oil prices... I mean, if there’s a further spike in oil prices, again, what is the knock-on effect and which are the exposed sectors and so on.”

The only complication at the moment is the conundrum that central banks are facing with inflation generally, the expert added. “And normally, if it were deemed just to be oil prices and just to be a temporary factor, they would do their best to look through it.”

Alex Raufoglu

Washington D.C.