Citi Cuts EM Growth Outlook

Citi has cut its EM GDP growth forecast by 0.4 percentage points in 2008 to 6.1%, and 0.5 percentage points in 2009 to 5.8%. “In the absence of a serious commodity downturn, our forecasts for the commodity producers in Latin America are the least affected across emerging markets,” says the shop. “That said, a number of countries show real appreciation that seem out of line with their current account positions or their overall vulnerability to external shocks.” This includes Brazil, where Citi says, “appreciation looks aggressive relative to its current account position” and may reflect a high interest differential. “We expect that differentiation to widen further in coming months as the Fed cuts policy rates and Brazil hikes them,” adds the shop. It also warns that Brazil could face a more serious downturn in risk appetite or a more rapid growth deceleration that triggers less aggressive rate moves.