Citi: Central Bank Stimulus Measures Won’t Spur Growth

Thursday, 20 Sep 2012 08:53 AM

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Central banks around the world have taken steps to simulate their respective economies, but monetary policy won’t spur more robust global growth, Citigroup analysts say.

The U.S. Federal Reserve has said it will buy $40 billion worth of mortgage-backed securities a month from banks on an open-ended basis, a policy tool known as quantitative easing that pumps liquidity into the financial system to spur investing and job demand.

The European Central Bank (ECB) has unveiled a scheme to buy sovereign debt in the open market to lower borrowing costs in troubled countries, while the Bank of Japan recently announced plans to expand the size of a monthly bond-purchasing program to jolt its economy.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

The Bank of England has undertaken similar measures in the past, while the People’s Bank of China has said it cannot rule out cutting interest rates or slashing bank reserve requirements to speed up recovery as well.

Don’t expect such actions to lead to greener pastures, at least not in the short-term.

“Even with policy action, economic growth in major countries is likely to remain disappointing in 2013,” Citigroup analysts write in a note to clients, according to CNBC.

Citigroup is sticking with a 2012 global growth forecast of 2.5 percent, but cut its 2013 forecast to 2.6 percent from a 2.8 percent prediction made in August.

“Within that, we have cut our 2013 China growth forecast to 7.6 percent from 8.0 percent, with our 2012 forecast staying at 7.9 percent.”

Chinese and European manufacturing data have disappointed recently, while in the United States, growth remains tepid and unemployment rates high.

The Markit research group reports that its Eurozone Purchasing Managers’ Index (PMI) Composite Output Index, which combines both manufacturing and service-sector data, fell to 45.9 in September from 46.3 in August.

September’s reading marked a 39-month low.

Loose monetary policies can make conditions ripe for investing and growth, but until businesses and households develop more confidence in their leadership and in fundamental economic policies, expect recovery to creep along.

“The fall in the PMI is another reminder that the ECB’s new asset purchase program is not an answer to all of the region’s problems,” Ben May, European economist at Capital Economics, writes in a research note, The Associated Press reported.

“The eurozone recession looks set to deepen in the latter part of the year.”

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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