Healthy economic growth is coming, Citi's chief strategist says

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The global economy does not need to “collapse” in order to bring inflation back on target and return to sustainable growth, according to Stephen Whiting, chief investment strategist and chief economist at Citi Global Wealth.

Major economies have proven surprisingly resilient to sharp interest rate increases from central banks over the past two years. This has been particularly evident in the United States, where a recession has been avoided so far and the labor market remains strong.

Talk has now turned to interest rate cuts as inflation remains on a downward path toward central banks' targets, while growth has slowed.

Whiting told CNBC's “Squawk Box Europe” on Monday that he is optimistic that the global economy does not need an “economic collapse” to rein in inflation.

“We had a massive shock — one pandemic, one crash,” he said. “We didn’t need two recessions to finally fix our inflation problem.”

“It is putting pressure on parts of our economy now – there is a decline in manufacturing and trade around the world – but it is likely to bottom out within the year.”

Headline US inflation reached 3.4% year-on-year in December, remaining above the Fed's 2% target but down significantly from a peak of 9.1% in June 2022.

Investors will be closely watching Friday's Personal Consumption Expenditures (PCE) inflation number, the Fed's preferred measure, for further clues on when the central bank will start cutting interest rates.

Meanwhile, a preliminary estimate for fourth-quarter GDP is scheduled to be released on Thursday, with the economy expected to grow by 1.7%, its lowest rate since the 0.6% decline in the second quarter of 2022.

“We believe that this period of slowing global growth and slowing employment growth in the United States can pass and lead to a period of healthier growth if we take a particular look at next year and beyond, and that is the work of investors this year,” Whiting said. .

He stressed that although there was a surplus to be taken out of the economy, this was not the result of “real heat” or a prolonged “boom”, but rather of excess government fiscal stimulus associated with the pandemic recovery, which was not the case. will be repeated.

“If you take a look at the money supply in the United States, it's down 4% over the last year. And you take a look at the 1970s, where growth was almost 10% for the entire decade, and prices that mattered were going up 14% every year — that's … “Sustainable inflation,” Whiting said.

“This story with all this government spending back and forth — the disruptions in supply and demand, and consumer spending rising or falling by 30% between goods and services, over the course of the pandemic — that's not the environment we're in anymore.”