Top Citi Strategist Foresees Healthy Economic Rebound

• Steven Wieting of Citi Global Wealth asserts that a global economic turnaround to address inflation doesn't necessitate a "collapse." Sustainable growth can be achieved without the need for a second recession.
• Despite significant interest rate hikes by central banks over the past two years, major economies, especially in the United States, have remained resilient. The job market is robust, and a recession has not yet occurred.
• With slowing GDP and inflation nearing central banks' objectives, the focus has shifted to rate reduction. Wieting's optimistic outlook emphasizes the anticipation of economic challenges reaching a nadir within the year. Key indicators, including the U.S. headline inflation rate and the upcoming PCE number, play a crucial role in shaping expectations about the central bank's stance on interest rates.

In order to restore sustainable growth and put inflation back to goal, the global economy does not require a "collapse," according to Steven Wieting, chief economist and investment strategist at Citi Global Wealth.

Over the past two years, central banks' significant rises in interest rates have surprisingly not affected major economies. This has been especially true in the United States, where the job market is still strong and the recession has not yet occurred.

Since GDP has slowed and inflation is still heading near central banks' objectives, the conversation has now shifted to rate reduction.

Wieting's Optimistic Outlook on Economic Transition and Inflation

Speaking on CNBC's "Squawk Box Europe" on Monday, Wieting expressed optimism that a global economic turnaround to tackle inflation doesn't necessitate an "economic collapse." He emphasized that the singular shock of the pandemic-induced collapse was substantial, and the world doesn't require a second recession to resolve inflationary challenges.

Wieting stated, "We had one massive shock - one pandemic, one collapse. We didn't need two recessions to ultimately cure our inflation problem."

While acknowledging current economic challenges such as manufacturing and trade declines worldwide, he anticipates these issues to reach a nadir within the year. Wieting remains positive about the global economic outlook despite ongoing difficulties, foreseeing a gradual recovery.

The headline inflation rate in the United States decreased significantly from a peak of 9.1% in June 2022 to 3.4% year over year in December, still over the Federal Reserve's 2% objective.

The Fed's favorite inflation measure, the personal consumption expenditure (PCE) number, is released on Friday. Investors will be keenly watching this number for any more hints about when the central bank may start lowering interest rates.

A preliminary estimate of the GDP for the fourth quarter is due on Thursday; it is predicted that the economy grew by 1.7%, the lowest pace since the 0.6% contraction in the second quarter of 2022.

Wieting, discussing the current phase of decelerated global growth and diminishing employment expansion in the United States, expressed confidence that this period can transition into a more robust growth phase. According to him, investors should focus on the upcoming year and beyond as they navigate the current economic landscape.

Emphasizing the need to address excesses in the economy, Wieting clarified that the prevailing conditions were not indicative of a "true overheating" or an extended "boom."

Instead, he attributed the existing excesses to the government's fiscal stimulus measures related to pandemic recovery, clarifying that these measures were unlikely to be replicated in the future.