One of the finest economists in the world, former BoE MPC member, Dr Willem Buiter, now global chief economist at Citi, comments in a note last night (these are very close to my own views: eg, bullish on global growth in 2011-12, and bullish on USD over next 1-2yrs but bearish over the longer-run):
"We continue to expect strong global growth this year and next, with global GDP rising 3½-4% each year, well above the long-run average of just below 3% YoY. We expect that US GDP growth will rebound to about 3% QoQ SAAR in Q2, buoyed by solid job growth, strong business investment and less drag from energy costs. The slowdown in China is likely to prove mild and, in terms of QoQ GDP growth, Q2 is likely to prove the weakest quarter. But growth remains uneven and many economies will not be growing particularly strongly this year and in 2012.
The ECB probably will signal at the upcoming June meeting that another 25bp rate hike is likely in July. We expect a further 25bp hike before year-end, with rates rising to about 2.5% by end-2012. The US Fed remains likely to keep rates on hold this year and – provided the economy improves as expected and financial conditions remain supportive — probably will then normalize rates by 300-400bp over time.
The EMU sovereign credit crisis is unlikely to fade quickly. We believe the chance of debt restructuring is high in Greece, Ireland and Portugal. For Spain, we believe risks of fiscal slippage over time are greater than markets currently price in.
US “Strong Dollar” rhetoric stands in contrast to weak dollar reality. Treasury yields remain low, but continuing contrast between rhetoric and policy implies that the reputational capital of US monetary and fiscal authorities is being eroded. Nevertheless, there is little prospect for change in either rhetoric or policy (see Chief Economist Essay, page 12).
Against this background, Citi strategists expect the USD to strengthen near term, but weaken medium term."
