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Britt Jensen

Britt Jensen, Principal, Client Advisory, Treasury and Trade Solutions, Citi

Additional Attributions from TTS Client Advisory

with contributions from Sofia Putri, Advisor, Client Advisory, Treasury and Trade Solutions, Citi and the Citi TTS Client Advisory Team

2022 was the first year post-pandemic when the world was supposed to return to normal. It began with countries opening, trade picking up, people resuming travel and life beginning to return to a new normal. Then came an increase in geopolitical unrest, trade tensions, supply chain challenges, soaring inflation, rising interest rates, FX volatility and an energy crisis. So what is the backdrop for treasury in 2023? How does that shape priorities this year? We do not make prognostications on economics and geopolitics or recommend when to do a trade based on the latest market conditions. We do see a backdrop of many companies starting the year with very positive business projections, allied to a generally constructive macroeconomic outlook. Within the first quarter, however, we experienced second-order impacts of the central bankers’ fight against inflation, changing geopolitical dynamics between major world powers and climate and energy strains. At the risk of recency bias, our take in Client Advisory is that volatility may not subside in 2023, and treasurers may be best off being ready for more stormy weather ahead. On a positive front, today, many of us work in ways we much prefer to our old office-bound routines. We all read of groundbreaking advances in technology on what seems like an almost daily basis. Closer to home, leading treasurers are taking advantage of new opportunities to support their companies’ revenue growth while ensuring financial efficiency, managing risk and optimizing capital. With all that said, we see three themes arising as top treasury priorities for 2023: Treasury as value generator. New ways of working and enhancing the treasury skillset. Continued focus on fundamentals. Treasury as value generator The pandemic highlighted the importance of having available cash at the right time and at the right place. Treasury was recognized as a critical resource and a trusted partner to the C-suite. This year, leading treasuries should seize the opportunity to embed their roles as value generators by supporting business growth and development. With the dramatic rise in the cost of capital, at many companies the biggest opportunity may be in creating focus on preserving capital and reducing reliance on external funding. A key aspect is improving working capital management and accelerating cash conversion cycles. Since unilaterally delaying supplier payments or trying to forcibly shorten days receivable carries significant business risk, what is needed is a strategic and thoughtful approach that identifies and eliminates inefficiencies across the cash conversion cycle. This is where treasury can create value. It can drive a cash culture across the organization to influence a broader understanding of how liquidity and working capital utilization impacts financial performance. It can help ensure that departments across the finance and business organization understand the impacts of inefficiencies in end-to-end operations impacting working capital needs. And it can be a catalyst for aligning policies, procedures and technology with working capital KPIs, thereby creating discipline on the use of cash. Each company is unique, and each treasurer is best placed to identify the most material opportunities for their company. Our point is that treasurers should leverage the momentum to become more than a support function and demonstrate the tremendous value add for firms in engaging treasury across financial and operational decision-making. New ways of working and enhancing the treasury skillset The second theme on the priority list this year is the complex combination of juggling new ways of working with building the future skillsets needed in treasury. Last year’s top treasury priorities touched on the topic of attracting and retaining talent within the organization. This year, treasury organizations will need to settle on the best ways of remote working in a function that is such an information nexus. Hybrid and remote working create opportunities, including boosting employee morale and creating the potential for treasury organizations to source the best talent without geographical limitations. Remote working can also create challenges. This can include a loss in productivity if staff are not physically working together and creating synergy off each other’s ideas, and the risk of being exclusionary for those whose personal circumstances are less suitable for remote working. Nevertheless, with the rise in alternative operating models, and hybrid and remote working options, we see a trend toward the treasury workforce increasingly being recruited globally rather than locally. This is where the concept of 24/7 treasury takes on a new dimension to include the element of people. With the added focus on treasury being a value-generating partner to the business, treasurers also need to build the skills that will be vital for the years ahead. The pace of technology development is heightening the need for tech-savvy treasury staff, with team members at all levels comfortable at deciding how business requirements can be addressed through technology solutions. Skills likely to become increasingly in demand include coding, data science and analytics, AI and machine learning, and understanding system architecture and integration management. At the same time, softer skills including strategic thinking on their firms’ changing businesses and industry dynamics (and potential demands on and opportunities for treasury), and influencing and communication skills will be important additions to an already complex role, where core finance and accounting competencies remain essential. The challenge for treasury is that these skills are highly desirable and transferable to other parts of the business and across most industries. In an already highly competitive market, where attracting and retaining talent is an imperative, each treasurer will need to find the right mix of incentives, flexibility and development opportunities for their organization. "The choice for treasurers now is how to be more intentional in evolving their function to support their firms’ growth as the world enters a new phase of dynamic change." Continued focus on fundamentals The third theme focuses on treasury fundamentals. The market outlook, and even recent attention on counterparty risk, is a reminder that it is as important as ever to ensure the fundamentals are strong. From our engagement at many companies, fundamental areas that still require focus are: Cash visibility and accessibility. Liquidity centralization. Rationalization of bank accounts and relationships. Automation. Treasurers can close gaps in full visibility and accessibility of cash by leveraging readily available technology. Multibank reporting is available through many alternatives, including information aggregators. TMS and ERP platforms should be upgraded to support the newest connectivity, including APIs and Swift connectivity. It is also a good time to evaluate existing cash centralization and pooling structures if this has not been done for a period. The goal should be to optimize liquidity globally by maximizing the participation of legal entities, countries and currencies within the limits allowable by regulations. Even enhancing intraday liquidity management — for example, leveraging recent advances in open banking and instant payments to concentrate cash faster from local collections banks — helps both liquidity management and counterparty risk management. It may also call for looking again at regulated markets. Historically, many companies left Emerging Markets out of pooling structures due to FX and capital controls. The reality is that regulations evolve, and many markets become more flexible as part of the effort to attract FDI. Liquidity optimization should be treated as a continuous process of assessing changes in the company’s operating business, regulations and tax considerations. This leads to reviewing bank account structures to rationalize and simplify where accounts no longer serve a strong business purpose. By adding KPIs along with rationalization, treasurers can actively work to reduce the number of banks and accounts — lowering cost, risk and operational complexity. Finally, treasurers should vigorously pursue opportunities to automate manual tasks. Automation is critical to reducing people-dependency and ensuring end- to-end efficiency in centralization of cash for intercompany funding, paying down debt or investing to take advantage of higher interest rates. Upgrading systems and automating processes helps treasury organizations free up resources, reduce risks, and avoid process redundancy. Watchlist ESG remains of interest to treasurers. Based on data from Citi Treasury Diagnostics, our global benchmarking survey, for 70% of companies ESG was extremely, very or moderately important. However, only 20% have treasury KPIs associated with ESG objectives. With the introduction of Scope 3 emissions and reporting standardization, we believe that ESG will be one to watch in the future for treasury with a potential shift in focus from E to G. Aftermath Treasurers often see themselves as risk managers, assessing all scenarios to identify and set a path to risk mitigation. The disruptions of recent years have given them new opportunities to create significant value for their firms. We noted that leading treasurers are adopting a broader outlook — supporting their companies’ revenue growth, as well as ensuring financial efficiency, managing risk and optimizing capital. Has the time now come for all treasurers to stake this new ground? Client Advisory will continue to offer our research and perspectives for treasurers throughout the year. Please reach out to your Citi Representative for further updates.

2022 was the first year post-pandemic when the world was supposed to return to normal. It began with countries opening, trade picking up, people resuming travel and life beginning to return to a new normal. Then came an increase in geopolitical unrest, trade tensions, supply chain challenges, soaring inflation, rising interest rates, FX volatility and an energy crisis.
So what is the backdrop for treasury in 2023? How does that shape priorities this year?
We do not make prognostications on economics and geopolitics or recommend when to do a trade based on the latest market conditions. We do see a backdrop of many companies starting the year with very positive business projections, allied to a generally constructive macroeconomic outlook. Within the first quarter, however, we experienced second-order impacts of the central bankers&rsquo; fight against inflation, changing geopolitical dynamics between major world powers and climate and energy strains. At the risk of recency bias, our take in Client Advisory is that volatility may not subside in 2023, and treasurers may be best off being ready for more stormy weather ahead.
On a positive front, today, many of us work in ways we much prefer to our old office-bound routines. We all read of groundbreaking advances in technology on what seems like an almost daily basis. Closer to home, leading treasurers are taking advantage of new opportunities to support their companies&rsquo; revenue growth while ensuring financial efficiency, managing risk and optimizing capital.
With all that said, we see three themes arising as top treasury priorities for 2023:
<ol>
<li>Treasury as value generator.</li>
<li>New ways of working and enhancing the treasury skillset.</li>
<li>Continued focus on fundamentals.</li>
</ol>
Treasury as value generator
The pandemic highlighted the importance of having available cash at the right time and at the right place. Treasury was recognized as a critical resource and a trusted partner to the C-suite. This year, leading treasuries should seize the opportunity to embed their roles as value generators by supporting business growth and development.
With the dramatic rise in the cost of capital, at many companies the biggest opportunity may be in creating focus on preserving capital and reducing reliance on external funding. A key aspect is improving working capital management and accelerating cash conversion cycles. Since unilaterally delaying supplier payments or trying to forcibly shorten days receivable carries significant business risk, what is needed is a strategic and thoughtful approach that identifies and eliminates inefficiencies across the cash conversion cycle. This is where treasury can create value. It can drive a cash culture across the organization to influence a broader understanding of how liquidity and working capital utilization impacts financial performance. It can help ensure that departments across the finance and business organization understand the impacts of inefficiencies in end-to-end operations impacting working capital needs. And it can be a catalyst for aligning policies, procedures and technology with working capital KPIs, thereby creating discipline on the use of cash.
Each company is unique, and each treasurer is best placed to identify the most material opportunities for their company. Our point is that treasurers should leverage the momentum to become more than a support function and demonstrate the tremendous value add for firms in engaging treasury across financial and operational decision-making.
New ways of working and enhancing the treasury skillset
The second theme on the priority list this year is the complex combination of juggling new ways of working with building the future skillsets needed in treasury.
Last year&rsquo;s top treasury priorities touched on the topic of attracting and retaining talent within the organization. This year, treasury organizations will need to settle on the best ways of remote working in a function that is such an information nexus.
Hybrid and remote working create opportunities, including boosting employee morale and creating the potential for treasury organizations to source the best talent without geographical limitations. Remote working can also create challenges. This can include a loss in productivity if staff are not physically working together and creating synergy off each other&rsquo;s ideas, and the risk of being exclusionary for those whose personal circumstances are less suitable for remote working. Nevertheless, with the rise in alternative operating models, and hybrid and remote working options, we see a trend toward the treasury workforce increasingly being recruited globally rather than locally. This is where the concept of 24/7 treasury takes on a new dimension to include the element of people.
With the added focus on treasury being a value-generating partner to the business, treasurers also need to build the skills that will be vital for the years ahead. The pace of technology development is heightening the need for tech-savvy treasury staff, with team members at all levels comfortable at deciding how business requirements can be addressed through technology solutions. Skills likely to become increasingly in demand include coding, data science and analytics, AI and machine learning, and understanding system architecture and integration management.
At the same time, softer skills including strategic thinking on their firms&rsquo; changing businesses and industry dynamics (and potential demands on and opportunities for treasury), and influencing and communication skills will be important additions to an already complex role, where core finance and accounting competencies remain essential. The challenge for treasury is that these skills are highly desirable and transferable to other parts of the business and across most industries.
In an already highly competitive market, where attracting and retaining talent is an imperative, each treasurer will need to find the right mix of incentives, flexibility and development opportunities for their organization.
&nbsp;
"The choice for treasurers now is how to be more intentional in evolving their function to support their&nbsp; firms&rsquo; growth as the world enters a new phase of&nbsp; dynamic change."
&nbsp;
Continued focus on fundamentals
The third theme focuses on treasury fundamentals. The market outlook, and even recent attention on counterparty risk, is a reminder that it is as important as ever to ensure the fundamentals are strong.
From our engagement at many companies, fundamental areas that still require focus are:
<ul>
<li>Cash visibility and accessibility.</li>
<li>Liquidity centralization.</li>
<li>Rationalization of bank accounts and relationships.</li>
<li>Automation.</li>
</ul>
Treasurers can close gaps in full visibility and accessibility of cash by leveraging readily available technology. Multibank reporting is available through many alternatives, including information aggregators. TMS and ERP platforms should be upgraded to support the newest connectivity, including APIs and Swift connectivity.
It is also a good time to evaluate existing cash centralization and pooling structures if this has not been done for a period. The goal should be to optimize liquidity globally by maximizing the participation of legal entities, countries and currencies within the limits allowable by regulations. Even enhancing intraday liquidity management &mdash; for example, leveraging recent advances in open banking and instant payments to concentrate cash faster from local collections banks &mdash; helps both liquidity management and counterparty risk management. It may also call for looking again at regulated markets. Historically, many companies left Emerging Markets out of pooling structures due to FX and capital controls. The reality is that regulations evolve, and many markets become more flexible as part of the effort to attract FDI. Liquidity optimization should be treated as a continuous process of assessing changes in the company&rsquo;s operating business, regulations and tax considerations.
This leads to reviewing bank account structures to rationalize and simplify where accounts no longer serve a strong business purpose. By adding KPIs along with rationalization, treasurers can actively work to reduce the number of banks and accounts &mdash; lowering cost, risk and operational complexity.
Finally, treasurers should vigorously pursue opportunities to automate manual tasks. Automation is critical to reducing people-dependency and ensuring end- to-end efficiency in centralization of cash for intercompany funding, paying down debt or investing to take advantage of higher interest rates. Upgrading systems and automating processes helps treasury organizations free up resources, reduce risks, and avoid process redundancy.
Watchlist
ESG remains of interest to treasurers. Based on data from Citi Treasury Diagnostics, our global benchmarking survey, for 70% of companies ESG was extremely, very or moderately important. However, only 20% have treasury KPIs associated with ESG objectives. With the introduction of Scope 3 emissions and reporting standardization, we believe that ESG will be one to watch in the future for treasury with a potential shift in focus from E to G.
<img style="float: right;" src="/rcs/v1/media/citigpa/akpublic/storage/retrieveMediaFile/64876730c2fbaf78fbc8934a.png" alt="TTP" />
Aftermath
Treasurers often see themselves as risk managers, assessing all scenarios to identify and set a path to risk mitigation. The disruptions of recent years have given them new opportunities to create significant value for their firms. We noted that leading treasurers are adopting a broader outlook &mdash; supporting their companies&rsquo; revenue growth, as well as ensuring financial efficiency, managing risk and optimizing capital. Has the time now come for all treasurers to stake this new ground?
Client Advisory will continue to offer our research and perspectives for treasurers throughout the year. Please reach out to your Citi Representative for further updates.

Over the last few years, unforeseen challenges have placed a spotlight on treasury as a critical resource for the firm. What should be on treasurers’ minds as they venture forward this year?

2022 was the first year post-pandemic when the world was supposed to return to normal. It began with countries opening, trade picking up, people resuming travel and life beginning to return to a new normal. 

The top treasury priorities of 2023: Key themes for treasury

China’s relative “safe haven” status could become more pronounced as it potentially benefits from a range of factors as follows. Growth premium: China should be the only major economy to see growth ramp up this year as its covid recovery remains on track. Excess household savings have provided a floor for an early recovery in consumption. Financial soundness: China has made significant efforts to defuse financial risks over the past few years, with regulators rolling out new asset management rules to curb shadow bank risks and attempting to address property-bubble risks. The worst of China’s property downturn may be in the past, and Beijing appears determined to keep local government debt risks at bay. Policy discipline: The People’s Bank of China’s surprise cut to the reserve requirement ratio was a signal of policy support amid global volatility. The authors note that liquidity may remain relatively ample to contain contagion fears, but the loan prime rate has been unchanged for seven months. The PBoC has been prudent in easing rates during the pandemic era, perhaps taking lessons from the U.S., and may quickly switch to wait-and see mode once growth is back on track. The authors expect 2023 to be a year of fiscal repair, without a massive financial stimulus or aggressive monetary easing. A new political economy cycle: A new economic team is taking over in China. Development remains the top policy priority, and the policy mode is shifting from risk management to real business with a refocus on economic development. The reappointment of incumbent PBoC Governor Yi Gang and Finance Minister Liu Kun also means experienced hands in terms of economic policy. Pro-business, pro-private and pro-FDI policy initiatives may come from new premier Li Qiang in the coming months US China Monetary Policy Divergence is Set to Peak Out @2023 Citigroup Inc. No redistribution without Citigroup’s written permission Source: Fed, PBoC, CEIC, Citi Research The authors go on to offer several key takeaways from recent meetings during Citi’s China Macro Tour. These include the following: China’s growth target shouldn’t be too difficult: All the experts agreed the growth target of “around 5%” shouldn’t be too difficult to achieve, but remained cautious about the economy’s weak links, with near-term concerns centered on whether consumption will recover. A number of factors could constrain that recovery, and if household confidence stays weak, there’s no guarantee that China’s high savings will translate into high levels of consumption this year. What’s the source of growth over the next five to 10 years? Factoring in structural challenges, most experts saw China’s potential growth between 4% and 4.50% over the next five to 10 years, noting downside risks from demographic factors, policy uncertainties and supply-chain reconfiguration. That said, one expert still viewed “5% for the next 10 years” as completely possible. The property sector remains a concern: Experts saw the real-estate sector as a smaller drag for China’s economy this year, and remaining an essential pillar of the national economy. They also saw less room for relaxing policy in coming months: Property prices are already showing signs of stabilizing or picking up, and there’s little room to relax purchase restrictions in the centers of top-tier cities. But long-term concerns remain, from developer debt to potential issues with nonperforming loans. The private economy needs more policy clarity: The experts agreed that lack of policy transparency is driving weak confidence among private entrepreneurs. Policy coordination has also become less efficient in recent years, they said, with repairing balance sheets potentially taking a few years, particularly if confidence needs to revive. For more key takeaways from these meetings and more on the road ahead for China, please see the full report here China Economics / Equity Strategy / Quant - Safe Haven / Slower-than-expected Recovery / High Rotation Risk (5th April 2023) Citi Global Insights (CGI) is Citi’s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click here.

China&rsquo;s relative &ldquo;safe haven&rdquo; status could become more pronounced as it potentially benefits from a range of factors as follows.
Growth premium: China should be the only major economy to see growth ramp up this year as its covid recovery remains on track.
Excess household savings have provided a floor for an early recovery in consumption.
Financial soundness: China has made significant efforts to defuse financial risks over the past few years, with regulators rolling out new asset management rules to curb shadow bank risks and attempting to address property-bubble risks. The worst of China&rsquo;s property downturn may be in the past, and Beijing appears determined to keep local government debt risks at bay.
Policy discipline: The People&rsquo;s Bank of China&rsquo;s surprise cut to the reserve requirement ratio was a signal of policy support amid global volatility. The authors note that liquidity may remain relatively ample to contain contagion fears, but the loan prime rate has been unchanged for seven months.
The PBoC has been prudent in easing rates during the pandemic era, perhaps taking lessons from the U.S., and may quickly switch to wait-and see mode once growth is back on track. The authors expect 2023 to be a year of fiscal repair, without a massive financial stimulus or aggressive monetary easing.
A new political economy cycle: A new economic team is taking over in China. Development remains the top policy priority, and the policy mode is shifting from risk management to real business with a refocus on economic development. The reappointment of incumbent PBoC Governor Yi Gang and Finance Minister Liu Kun also means experienced hands in terms of economic policy. Pro-business, pro-private and pro-FDI policy initiatives may come from new premier Li Qiang in the coming months
US China Monetary Policy Divergence is Set to Peak Out
<img src="/rcs/v1/media/citigpa/akpublic/storage/retrieveMediaFile/644296164521330167b3e17e.png" />
@2023 Citigroup Inc. No redistribution without Citigroup&rsquo;s written permission Source: Fed, PBoC, CEIC, Citi Research
&nbsp;
The authors go on to offer several key takeaways from recent meetings during Citi&rsquo;s China Macro Tour. These include the following:
China&rsquo;s growth target shouldn&rsquo;t be too difficult: All the experts agreed the growth target of &ldquo;around 5%&rdquo; shouldn&rsquo;t be too difficult to achieve, but remained cautious about the economy&rsquo;s weak links, with near-term concerns centered on whether consumption will recover. A number of factors could constrain that recovery, and if household confidence stays weak, there&rsquo;s no guarantee that China&rsquo;s high savings will translate into high levels of consumption this year.
What&rsquo;s the source of growth over the next five to 10 years? Factoring in structural challenges, most experts saw China&rsquo;s potential growth between 4% and 4.50% over the next five to 10 years, noting downside risks from demographic factors, policy uncertainties and supply-chain reconfiguration. That said, one expert still viewed &ldquo;5% for the next 10 years&rdquo; as completely possible.
The property sector remains a concern: Experts saw the real-estate sector as a smaller drag for China&rsquo;s economy this year, and remaining an essential pillar of the national economy. They also saw less room for relaxing policy in coming months: Property prices are already showing signs of stabilizing or picking up, and there&rsquo;s little room to relax purchase restrictions in the centers of top-tier cities. But long-term concerns remain, from developer debt to potential issues with nonperforming loans.
The private economy needs more policy clarity: The experts agreed that lack of policy transparency is driving weak confidence among private entrepreneurs. Policy coordination has also become less efficient in recent years, they said, with repairing balance sheets potentially taking a few years, particularly if confidence needs to revive.
For more key takeaways from these meetings and more on the road ahead for China, please see the full report here <a href="https://www.citivelocity.com/t/r/eppublic/2emjc" target="_blank" rel="noopener" data-link-source="tiny">China Economics / Equity Strategy / Quant - Safe Haven / Slower-than-expected Recovery / High Rotation Risk</a> (5th April 2023)
Citi Global Insights (CGI) is Citi&rsquo;s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click <a href="https://ir.citi.com/6A3IURUaezPxFLppsgdBkqidjLaLn558JwHISYaDZcTfE9XMRB1isDDDVorqrxpR%2fTnEi4RUCl8%3d" target="_blank" rel="noopener" data-link-source="tiny">here</a>.
&nbsp;
&nbsp;

A new report from Citi Research’s Xiangrong Yu looks at the safe-haven potential of China, particularly in the wake of global banking stresses and recent central bank moves in developed markets. 

Is China a Safe Haven Amid Global Ructions? 

Growth in the United States is holding up well despite some signs of slowing. The euro-area economy seems to be bouncing back from the stagnation posted through the past two quarters. Recent data for China were softer than expected, they say, but the Chinese consumer’s post-COVID recovery continues. Global Growth Forecasts © 2023 Citigroup Inc. No redistribution without Citigroup’s written permission. Source: Citi Research Citi Research expects global growth in aggregate to run at 2.4% this year and 2.1% next year. With trend growth currently near 3%, neither year is likely to see gangbusters performance relative to any absolute standard. But the more important point, the analysts say, is that in the face of headwinds — including the continued effects of the Russia-Ukraine war, high inflation, surging central bank policy rates, and more recent banking sector stresses — the global economy continues to advance. High inflation also persists. Global inflation this year is likely to run at 5.6% and to moderate to 4.2% next year, well above central bank targets, they say. The drivers of inflation are different now. Now it’s not broken supply chains and surging goods spending but more tight labour markets and strong services demand. Regardless of what is driving it, inflation is high. In response, central banks have maintained tight policies. In some cases, they are even tightening. As a result, the team sees episodic weakness in various countries through the end of next year as shown in the following chart. Recession Outlook © 2023 Citigroup Inc. No redistribution without Citigroup’s written permission. Source: Citi Research. Note: Arrows indicate recessions. In the U.S., the team says that a recession is likely the only way to cool the tight labor market and continued inflationary pressures. As a result, their forecast envisions a downturn taking hold before the end of this year. Similarly, they expect that the ECB’s tightening, designed to counter above-target inflation, will result in a recession in the euro area during the second half of next year. They also see recessions in the United Kingdom, Canada, Brazil, and Mexico. In aggregate, global growth is projected to slow gradually through the first quarter of next year, but to remain positive. The team says they are increasingly convinced that a full-blown global recession, in which many countries move down together, is not in the cards. In the full report, Mr. Sheets and team examine some of the deeper factors that are shaping global performance. These include red-hot services demand, persistently rapid inflation, high and rising central bank policy rates, and continued pressures on the banking system. The bottom line, they say, is they see a global economy that, notwithstanding an array of adverse shocks, continues to manifest solid growth. While this resilience is good news, the ongoing strength of activity has also fueled inflation pressures — prompting central bank hikes. They expect that the tight monetary policy that has resulted will be maintained until inflation reverses. Notably, however, this reversal is likely to require a slackening of labour market conditions and recession in some major economies. Relative to this baseline, the recent banking sector stresses pose downside risks, including the possibility of still-tighter credit conditions, weaker growth, and longer or deeper recessions. For more information on this subject, please see the full report, published on 24 May 2023, here: Global Economic Outlook & Strategy - The Storms Continue, But So Does Global Growth Citi Global Insights (CGI) is Citi’s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click here.

Growth in the United States is holding up well despite some signs of slowing. The euro-area economy seems to be bouncing back from the stagnation posted through the past two quarters. Recent data for China were softer than expected, they say, but the Chinese consumer&rsquo;s post-COVID recovery continues.
Global Growth Forecasts
<img src="/rcs/v1/media/citigpa/akpublic/storage/retrieveMediaFile/648b45a6129a4f344ac0d710.png" width="560" height="436" />
&copy; 2023 Citigroup Inc. No redistribution without Citigroup&rsquo;s written permission. Source: Citi Research
&nbsp;
Citi Research expects global growth in aggregate to run at 2.4% this year and 2.1% next year. With trend growth currently near 3%, neither year is likely to see gangbusters performance relative to any absolute standard. But the more important point, the analysts say, is that in the face of headwinds &mdash; including the continued effects of the Russia-Ukraine war, high inflation, surging central bank policy rates, and more recent banking sector stresses &mdash; the global economy continues to advance.
High inflation also persists. Global inflation this year is likely to run at 5.6% and to moderate to 4.2% next year, well above central bank targets, they say.
The drivers of inflation are different now. Now it&rsquo;s not broken supply chains and surging goods spending but more tight labour markets and strong services demand. Regardless of what is driving it, inflation is high. In response, central banks have maintained tight policies. In some cases, they are even tightening. As a result, the team sees episodic weakness in various countries through the end of next year as shown in the following chart.
Recession Outlook
<img src="/rcs/v1/media/citigpa/akpublic/storage/retrieveMediaFile/648b461e129a4f344ac0d716.png" width="660" height="559" />
&copy; 2023 Citigroup Inc. No redistribution without Citigroup&rsquo;s written permission. Source: Citi Research. Note: Arrows indicate recessions.
In the U.S., the team says that a recession is likely the only way to cool the tight labor market and continued inflationary pressures. As a result, their forecast envisions a downturn taking hold before the end of this year. Similarly, they expect that the ECB&rsquo;s tightening, designed to counter above-target inflation, will result in a recession in the euro area during the second half of next year. They also see recessions in the United Kingdom, Canada, Brazil, and Mexico. In aggregate, global growth is projected to slow gradually through the first quarter of next year, but to remain positive. The team says they are increasingly convinced that a full-blown global recession, in which many countries move down together, is not in the cards.
In the full report, Mr. Sheets and team examine some of the deeper factors that are shaping global performance. These include red-hot services demand, persistently rapid inflation, high and rising central bank policy rates, and continued pressures on the banking system.
The bottom line, they say, is they see a global economy that, notwithstanding an array of adverse shocks, continues to manifest solid growth. While this resilience is good news, the ongoing strength of activity has also fueled inflation pressures &mdash; prompting central bank hikes. They expect that the tight monetary policy that has resulted will be maintained until inflation reverses. Notably, however, this reversal is likely to require a slackening of labour market conditions and recession in some major economies.
Relative to this baseline, the recent banking sector stresses pose downside risks, including the possibility of still-tighter credit conditions, weaker growth, and longer or deeper recessions.
For more information on this subject, please see the full report, published on 24 May 2023, here: <a href="https://www.citivelocity.com/t/r/eppublic/2hnWz" target="_blank" rel="noopener" data-link-source="tiny">Global Economic Outlook &amp; Strategy - The Storms Continue, But So Does Global Growth</a>
Citi Global Insights (CGI) is Citi&rsquo;s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click <a href="https://ir.citi.com/6A3IURUaezPxFLppsgdBkqidjLaLn558JwHISYaDZcTfE9XMRB1isDDDVorqrxpR%2fTnEi4RUCl8%3d" target="_blank" rel="noopener" data-link-source="tiny">here</a>.
&nbsp;
&nbsp;

A recent report from Citi Research’s Chief Economist Nathan Sheets and team says that the global economy continues to face a range of challenges. But they sound a note of optimism based on recent performance that has shown surprising resilience. 

Storms Continue But Growth Does Too

Deirdre Dunn, Co-Head of Global Rates, Citi in conversation with Lawrence H. Summers, 71st U.S. Secretary of the Treasury and the Charles W. Eliot University Professor and President Emeritus of Harvard University.
&nbsp;
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The speakers&rsquo; views are their own and may not necessarily reflect the views of Citi or any of its affiliates. All opinions are subject to change&nbsp;without notice. Neither the information&nbsp;provided&nbsp;nor any opinion expressed constitutes&nbsp;a solicitation for the purchase or sale of any security. The expressions of opinion&nbsp;are not&nbsp;intended to be a forecast of future events or a guarantee of future results.

Lawrence H. Summers shares his thoughts on the recent Fed update and a medium term outlook.  