Willem Buiter, special economic adviser at Citigroup, shared his outlook on the emerging markets (EMs), the US Fed, the US-China trade war and other geopolitical risks.
“The US Fed’s balance sheet has never been an auto-pilot. The schedules that they produced just reflects their expected or their planned balance sheet contraction. If there are objective economic circumstances such as sudden tightening of financial conditions that warrant an interruption of the balance sheet contraction, it will happen, they are not set in stone,” Buiter told CNBC-TV18 on Tuesday.
Talking about the ongoing trade war between the US and China, Buiter said, “The US and China both are slowing down for a few of the domestic reasons. On top of that, we have the trade conflict, on top of that we have the partial shutdown of government in the US, we have uncertainty in Europe both related to Brexit and to rising populism so there is more than enough to make for a steady global slowdown during 2019".
“The US can slowdown but still can grow faster than potential output in the US. They are growing currently at a rate of just under 3 percent. Potential output growth is no more than 2 percent in the US in our view. so that means that even if they slowdown by 4 percent point over 2019 - which would be top of the range estimate – then they would still be growing roughly at potential output. So the Fed can continue to hike slowly and gradually during 2019,” said Buiter.
With regards to the US dollar and oil prices, he said, “Global slowdown is likely to occur during a period of still rising US policy rates and still quite high US longer-term yields and I don’t see any immediate weakening of the US dollar. So this doesn’t sound like an external environment within which emerging markets thrive. Of course, oil prices are weak and that helps a number of emerging markets including India".
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