Citi Research released a new research report titled “Global Economic Outlook and Strategy — Prospects for Economies and Financial Markets in 2014 and Beyond” on Monday. The report (written by Willem Buiter and colleagues) was relatively positive on global economic conditions, saying economic growth should continue to improve modestly and not auguring any major bumps in the road over the next 12 months.

Economic Radar

Global economic growth outlook 2014

The report offered a sanguine economic outlook for 2014, saying improved economic growth is likely. “We expect a modest reacceleration in global real GDP growth (at market exchange rates) from 2.4% in 2013 to about 3.1% in 2014, the best since 2010, with growth in advanced economies (AEs) up from 1.1% in 2013 to about 2.0% in 2014. Growth is likely to be around 3% in the US and UK in 2014-15.”

Japan was, however, singled out as the exception to the growth story. Citi projects Japan’s growth will “…slow significantly during 2014 as the consumption tax hike bites.”

Global Economic Growth

Emerging markets slowdown

While Citi expects emerging market economic growth to remain above the relatively anemic growth rates of advanced economies, they do anticipate a significant slowdown in most emerging market economies. They go further to predict the slowdown will result in the smallest AE-EM growth gap since 2002. They argue the implications of the looming Fed “taper” will continue to be a drag on EM economies throughout 2014.

Monetary policy outlook

The report also offers a broad overview on Citi’s monetary policy outlook for 2014. “Monetary policy is likely to remain loose across advanced economies, and indeed we expect further loosening in 2014 from the BoJ and ECB — with the ECB probably setting a slightly negative deposit rate alongside a lower refi rate, extra liquidity and enhanced forward guidance. The Fed is likely to end asset purchases in late 2014, but its balance sheet at end-2014 will most likely be larger than it is now. A range of advanced economies (probably including the US, UK, Canada, Australia) will begin to withdraw stimulus in 2015, but are unlikely to tighten enough to trigger significant slowdowns.”