Citi Expects Mild Recession in US in Second Half of 2023

Citi sees a macroeconomic environment that is better than expected in the new year.

This is being driven by warmer weather easing the stress on energy supplies in Europe, the lifting of COVID restrictions improving sentiment and growth in China, and a strong labor market and a willingness to dip into savings keeping spending steady in the United States, Citi CEO Jane Fraser said Friday (Jan. 13) during the company’s quarterly earnings call.

“As we enter 2023, the environment is a tad better than we all expected, for the time being at least, despite the aggressive tightening by central banks,” Fraser said during the call.

Still, Citi continues to expect a mild recession in the U.S. to begin in the second half of the year because the Federal Reserve is working to tackle core inflation, Fraser said.

As PYMNTS reported Thursday (Jan. 12), Citi is one of the marquee names in financial services providing insights into trends and market pressures.

Reporting on the company’s results and the macro trends seen during the second half of 2022, Fraser said it went as expected.

During the fourth quarter, Citi’s saw good revenue growth in its services, markets and U.S. personal banking businesses.

“In U.S. personal banking, both cards businesses had double-digit revenue growth for the second straight quarter as purchase sales and revolving balances continue to grow strongly,” Fraser said.

Citi’s investment banking and wealth management businesses, on the other hand, are coping with challenging environments.

Citi is not alone in seeing this, as there was a record drop in global merger and acquisition (M&A) activity over the last six months, with the value of global M&A dealmaking falling from $2.2 trillion in the first half of 2022 to $1.4 trillion in the second half.

“With the wallet down significantly, our investment banking revenues were off by about 60% this quarter,” Fraser said. “While the pipeline looks more promising and client sentiment is improving, it would be hard to precisely predict when the tide will turn in 2023.”

Wealth management, too, was impacted by macro headwinds, Fraser said.

Planning for the recession it expects in the second half of the year, Citi has increased its reserves in personal banking in anticipation of rising credit losses.