FORECASTING THE GLOBAL ECONOMY

I had the good fortune of gaining some important insights from Michael Corbat, CEO of Citi Holdings and head of the brokerage and asset management unit of Citigroup, who spoke on the global economic outlook at a recent luncheon sponsored by the New York Chapter of the Swedish-American Chamber of Commerce.

Here are some highlights of his talk, which made a real impact on my thinking:

• The U.S. economy is recovering but will lag behind many other parts of the world. The overall recovery will need to be driven outside the U.S.: primarily in India, China and Brazil.

• European recovery will be fragmented. Spain has a terrible unemployment market. Germany is much stronger. Things are not great in Italy.

• We have moved from spending to saving. This will not be a short-term trend but a long-term one. People used to pay their mortgages first; but because home values are slipping, they are now paying their credit cards first and their auto loans second. Credit card delinquencies appear to have peaked.

• The debt to GDP ratio is 40% and will move to 70%. It will take two decades to return to 40%.

• Credit markets are still dependent on what is being put in by governments – consumer confidence is low and is largely centered on peoples’ estimation of the stability of their jobs and the value of their homes. Both are under considerable stress.

• At Citi, we’ve helped keep 700,000 people in their homes. Nevertheless, we’re involved in a large-scale cleanup. With a presence in 100 countries worldwide, we are reorganizing our business globally to focus on our strengths. We will be more like we were 20 years ago.

• Citi is tying itself to global customers to move their businesses forward. Many companies have become extremely defensive and need to build and invest in technology. We will co-partner with them to help them grow.

• The U.S. has a lot of rebuilding to do. We have undermined our credibility. The general expectation is that the U.S. will continue to be a power, but not as strong as it once was.


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