Pimco Forecasts U.S. Economy May Stagnate
Dec. 22 (Bloomberg) -- Garry Evans, head of global equity strategy at HSBC Holdings Plc, talks about the impact of the European debt crisis on the U.S. economy. He speaks with Erik Schatzker on Bloomberg Television's "Inside Track." (Source: Bloomberg)
Pacific Investment Management Co., whose largest fund is suffering its worst year on record after Bill Gross’s failed bet against Treasuries, said the U.S. may stagnate next year, a view at odds with recent data signaling continued growth.
The U.S. economy may expand 0 percent to 1 percent, weighed down by Europe’s debt crisis and a slowdown in China, Pimco said in an economic outlook posted on its website. Europe may contract 1.5 percent to 1 percent, while China may expand 6.75 percent to 7.25 percent, the Newport Beach, California-based firm forecasts. Global growth will slow to 1 percent to 1.5 percent, from 2.5 percent, Pimco said.
“Were it not for the brewing crisis in the euro zone, and the expected slowdown in aggregate demand in China and other emerging economies, the outlook for the U.S. economy might have been relatively sanguine for the year ahead,” Saumil H. Parikh, who leads Pimco’s cyclical economic forums, wrote in the report.
The view contrasts with recent reports showing gains in manufacturing and consumer spending, alongside improvements in the housing market. Fewer Americans than forecast sought jobless benefits and consumer confidence climbed, reports today showed. Pimco in 2009 predicted that, following the market collapse in 2008, the U.S. economy would grow at a below-average pace for several years as unemployment stays elevated and the “heavy hand of government” would be evident in the markets.
Gross is co-chief investment officer at Pimco. The firm, owned by Munich-based insurer Allianz SE, manages about $1.3 trillion in assets.
‘Stinker’
Gross’s Total Return Fund, the world’s biggest mutual fund, is on track for its first calendar year of redemptions after it trailed 72 percent of rivals in 2011, according to data compiled by research firm Lipper and Bloomberg. Investors pulled $2.3 billion from the $241 billion fund in the first 11 months of this year. Total Return beat 98 percent of peers over the past five years.
Gross, in an October letter to clients titled “Mea Culpa,” called 2011 a “stinker” of a year after he shunned Treasuries in the first half and missed a rally as investors rushed to the safety of government-backed debt amid the European sovereign-debt crisis. After eliminating Treasuries from the portfolio in February, Gross has piled back into the securities, bringing government and Treasury debt to 23 percent as of Nov. 30.
Pimco’s outlook compares with a median forecast of 2.1 percent growth by 70 economists in a Bloomberg News survey from Dec. 2 to Dec. 8. Ten-year treasury notes may yield 2.6 percent by the end of 2012, the economists forecast.
Data on the U.S. economy have been outperforming analysts’ expectations by the most in nine months, a signal underlying strength may be greater than projected heading into 2012. The Citigroup Economic Surprise Index, a daily measure of whether economic data is better or worse than economists’ projections, rose to 85.7 this month, the highest since March. The index is calculated on a three-month rolling basis and weighted for the importance of the indicator.
To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net
To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net
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