The global economy is able to withstand the current upheaval in the U.S. housing market and global credit markets, as well as the stress of higher oil prices, according to economists at global banking giant Citigroup Inc.

Citi’s economic and market analysis group today released its annual prospects for financial ,arkets report titled “Stress and Resilience: Market Implications for 2008 and Beyond”.

The report, which presents detailed market and economic views from Citi economists, discusses the interaction between monetary policy and the pricing of risk, as well as emerging market economies’ vulnerability to external shocks.

“Our base case forecast reflects the judgment that the current stresses from the U.S. housing sector, high oil prices, a weak U.S. dollar and the recent financial turmoil will not overwhelm the global economy,” says Lewis Alexander, chief economist and head of economic and market analysis at Citi. “But, the level of uncertainty around our base case is unusually high.”

The strains in the core of the global financial system have intensified in recent weeks. Incoming economic data, however, point to moderation of global growth, not a collapse, according to the Citi report. The global economy has important sources of resilience. The U.S. economy benefits from strong productivity growth, a lack of imbalances outside the housing sector and strong household finances. Non-financial corporates have high profit margins and strong balance sheets. Core emerging economies have found a formula for high sustained growth. Better macroeconomic performance has helped to insulate emerging economies from external financial shocks.

In addition, Citi economists expect many major central banks to ease policy in coming months, including another 100 basis points in interest rate reductions from the Federal Reserve. “We do not expect either inflation or concerns about ‘moral hazard’ to prevent major central banks from easing,” says Alexander, “and this will help to limit downside risks.”

The economic outlook for the industrial world in 2008 is driven by the fallout from the plunge in U.S. housing and the related financial turmoil that has gripped the U.S. and Europe. U.S. housing activity probably will decline for much of 2008, with house prices likely to fall even longer.

The Euro area is slowing with a lag, reflecting the impact of past policy tightening, the expanding influence of the ongoing money and credit crisis, and the strengthening of the euro.

In Japan, the outlook continues to depend on external demand to achieve near-par expansion, while modest income gains slow consumption. Uncertainty will encourage the Bank of Japan to act very slowly in 2008.

“Our growth forecasts for emerging markets remain relatively robust next year driven by continued strong growth in Asia,” says Alexander. “But, we anticipate a slowdown in central Europe, which remains vulnerable to weak industrial country growth, and lower growth in Latin America.”