Citi's Buiter: World faces recession next year

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The global economy faces a period of contraction and declining trade next year as emerging nations struggle with tightening monetary policy, according to Citigroup's Chief Economist Willem Buiter.

Buiter reiterated his gloomy prediction at the Milken Institute London Summit on Tuesday, telling CNBC that China, Brazil and Russia are edging towards an economic downturn.

"(The slowdown) is not confined to China by any means," he said.

"The policy arsenal in the advanced economies is unfortunately very depleted, debt is still higher in the non-financial sector than it was in 2007. So we are really sitting in the sea watching the tide go out and not really able to respond effectively to the way we should."

Buiter predicts that global growth, at the market exchange rate, will fall below 2 percent and will lead to rising unemployment in many of the emerging markets, as well as a number of the advanced economies.

He added that countries like the U.S. and the U.K. might not feel the full effects of a recession but said that global growth would be "well below trend" with a "widening output gap." He said there would a whole range of other "dysfunctionalities" that have been building up since the global financial crash of 2008.

Global markets were roiled in September after a devaluation of the yuan by Chinese authorities led to heavy bouts of volatility for mainland Chinese shares. Investors worldwide are growing increasingly concerned about slowing growth in the world's second largest economy and question how a rate hike by the U.S. Federal Reserve could affect the international flow of capital.

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