Pacific Investment Management Co., which manages the world’s biggest bond fund, predicted the global economy will weaken next year as it warned the likelihood of widespread recessions across developed nations is increasing.
Global growth will slow to 1.5 percent to 2 percent after 2012’s 2.2 percent, according to a report published on the Newport Beach, California-based company’s website today by Saumil Parikh, a managing director.
“While we do not expect recessions across all developed countries in 2013, we certainly would caution that the probability of more widespread recessions has increased, given the coordinated slowdown in global aggregate demand we are witnessing across the world,” Parikh said.
The U.S. economy will grow 1 percent to 1.5 percent next year with “downside” risks, he said. While the prospect of a recovery in housing will help, lawmakers will likely create a drag on growth of about 1.5 percent of gross domestic product with a compromise fix for the so-called fiscal cliff, he said.
“For an economy that is struggling to grow at 2 percent per year, this will still be a significant one-time shock, but one that through clear communication and planning can be handled by the private sector,” Parikh said.
Pimco praised European Central Bank President Mario Draghi for reducing the “probability of depression-like” risks and providing “much-needed breathing room” by pledging to buy the bonds of countries that accept austerity conditions. The euro- area economy will still shrink 1 percent to 1.5 percent, it said.
China’s “easy growth” phase of 8 percent to 12 percent expansion is over, Parikh said. It nevertheless has the balance sheet and knowledge to maintain expansion of 6.5 percent to 7 percent in 2013, he said.
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