Citi: World economy trapped in ‘death spiral’

Katy Barnato | @KatyBarnato

49 Mins AgoCNBC.com

The global economy seems trapped in a "death spiral" that could lead to further weakness in oil prices, recession and a serious equity bear market, Citistrategists have warned.

Ivan Bliznetsov | Getty Images

Some analysts — including those at Citi — have turned bearish on the world economy this year, following an equity rout in January and weaker economic data out of China and the U.S.

"The world appears to be trapped in a circular reference death spiral," Citi strategists led by Jonathan Stubbs said in a report on Thursday.

"Stronger U.S. dollar, weaker oil/commodity prices, weaker world trade/petrodollar liquidity, weaker EM (and global growth)... and repeat. Ad infinitum, this would lead to Oilmageddon, a 'significant and synchronized' global recession and a proper modern-day equity bear market."

Stubbs said that macro strategists at Citi forecast that the dollar would weaken in 2016 and that oil prices were likely bottoming, potentially providing some light at the end of the tunnel.

"The death spiral is in nobody's interest. Rational behavior, most likely, will prevail," he said in the report.

Crude oil prices have tumbled by around 70 percent since the middle of 2014, during which time the U.S. dollar has risen by around 20 percent against a basket of currencies.

The world economy grew by 3.1 percent in 2015 and is projected to accelerate to expand by 3.4 percent in 2016 and 3.6 percent in 2017, according to the International Monetary Fund. The forecast reflects expectations of gradual improvement in countries currently in economic distress, notably Brazil, Russia and some in the Middle East.

By contrast, Citi forecasts the world economy will grow by only 2.7 percent in 2016 having cut its outlook last month.

World economy on edge of recession: Citi

Overall, advanced economies are mostly making a modest recovery, while many emerging market and developing economies are under strain from the rebalancing of the Chinese economy, lower commodity prices and capital outflows.

Stubbs added that policymakers would likely attempt to "regain credibility" in the coming weeks and months.

"This is fundamental to avoiding a proper/full global recession and dangerous disorder across financial markets. The stakes are high, perhaps higher than they have ever been in the post-World War II era," he said.

Just 151,000 new jobs were created in January in the U.S., in the latest sign that the world's biggest economy is slowing. Economists are concerned about an industrial or manufacturing recession in the country, following some warnings from companies in earnings seasons and recent weak manufacturing activity and durable goods orders data.

However, some analysts say markets are overegging the prospect of a global slump.

"Many markets are now pricing in a significant probability of recession and when we talk about recession, we're talking particularly about a U.S. recession. Do you think that is likely or not? To me, the odds are too high; the market is pricing too high a probability," Myles Bradshaw, the head of global aggregate fixed income at Amundi, told CNBC this week.

Markets too hasty to call a recession: Analyst

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Katy BarnatoReporter and Copy Editor, CNBC.com

Bloomberg editor quits: We can't cover Michael Bloomberg aggressively

money.cnn.com

Bloomberg Politics editor Kathy Kiely quit over what she said were restrictions on covering Bloomberg politically.

Kathy Kiely, the Washington news director at Bloomberg Politics, said she resigned from her post after growing uncomfortable with the way her outlet responded to news that Bloomberg is considering an independent White House bid.

Kiely's resignation was first reported by the Huffington Post.

"I was not comfortable with how we were reacting to this story and I didn't see any indication that the situation was going to improve soon," Kiely told CNNMoney on Wednesday. "I think that every candidate should be covered the same way."

The New York Times reported last Saturday that Bloomberg, the billionaire mogul and former three-term mayor of NYC, has "taken concrete steps" toward a potential White House run. Bloomberg Politics aggregated the Times report that day with a brief post. Kiely submitted her letter of resignation on Sunday.

Related: Donald Trump goes after Mike Bloomberg where it hurts

"I agonized about it because I really like the people I work with at Bloomberg," Kiely said. "We built a team and we built a website, and I admire my colleagues very much. But I've been a political journalist all my life and I felt I was not able to do the job I should be doing."

Kiely declined to say if there was a directive on how to handle Bloomberg's latest presidential trial balloon. When asked what specifically prompted the resignation, she said, "I just think the fact that we didn't jump on the story the way other organizations did. I was not comfortable with that."

Bloomberg Politics reporters and commentators have covered the story about Bloomberg's political ambitions since Kiely turned in her resignation. Mark Halperin, the managing editor of Bloomberg Politics, discussed the story Monday on both MSNBC and Bloomberg TV. On Wednesday, the site ran a story on the "bleak history of third-party presidential bids."

Ty Trippet, a spokesman for Bloomberg News, defended the company's coverage.

"We've covered the speculation every day since the Times story was published," Trippet said. "Our Editor-in-Chief John Micklethwait is in charge of decisions about coverage."

Kiely said she hopes her resignation "might help the folks who are trying to do the right thing."

"I think there are a lot of people at Bloomberg who are trying in their own way to allow a really good news organization to do the good work it's capable of," she said. "And this was my way."

CNNMoney (New York) First published January 27, 2016: 7:32 PM ET

COMMENTS

Ret. Marine Absolutely Owns CNN Anchor On 2nd Amendment - "Unconstitutional Laws Aren't Laws"

 "Unconstitutional Laws Aren't Laws"

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The Second Amendment (Amendment II) to the United States Constitution protects the right of individuals^[1][2] to keep and bear arms.^[3][4][5][6] The Supreme Court of the United States has ruled that the right vests in individuals, not merely collective militias, while also ruling that the right is not unlimited and does not prohibit all regulation of either firearms or similar devices.^[7] State and local governments are limited to the same extent as the federal government from infringing this right per the incorporation of the Bill of Rights. The Second Amendment was adopted on December 15, 1791, as part of the first ten amendments comprising the Bill of Rights.
The Second Amendment was based partially on the right to keep and bear arms in English common-law and was influenced by the English Bill of Rights of 1689. Sir William Blackstone described this right as an auxiliary right, supporting the natural rights of self-defense, resistance to oppression, and the civic duty to act in concert in defense of the state.^[8]
In United States v. Cruikshank (1876), the Supreme Court of the United States ruled that, "The right to bear arms is not granted by the Constitution; neither is it in any manner dependent upon that instrument for its existence" and limited the applicability of the Second Amendment to the federal government.^[9] In United States v. Miller (1939), the Supreme Court ruled that the federal government and the states could limit any weapon types not having a “reasonable relationship to the preservation or efficiency of a well regulated militia”.^[10][11]
In the twenty-first century, the amendment has been subjected to renewed academic inquiry and judicial interest.^[11] In District of Columbia v. Heller (2008), the Supreme Court handed down a landmark decision, expressly holding the amendment to protect an individual right to possess and carry firearms.^[12][13] In McDonald v. Chicago (2010), the Court clarified its earlier decisions that limited the amendment's impact to a restriction on the federal government, expressly holding that the Fourteenth Amendment applies the Second Amendment to state and local governments to the same extent that the Second Amendment applies to the federal government.^[14] Despite these decisions, the debate between the gun control and gun rights movements and related organizations continues.^[15]