Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., forecasts real growth in the U.S. will be about 1.5 percent a year for at least the next 10 years.
Slower labor-force expansion, overextended credit and potential geopolitical or environmental shocks will limit growth as the economy struggles to duplicate previous productivity gains, Gross said in a July 11 telephone interview.
“Slower growth means lower returns on capital,” Gross said. “If real GDP grows at 1.5 percent, then a diversified portfolio of stocks and bonds would probably grow at 1.5 percent, as well.”
Gross’s prediction contrasts with those of 72 economists in a Bloomberg survey, who estimate median real gross domestic product will expand more than 2 percent a year through 2014, the last year for which forecast data is available. The economists estimate 2.1 percent growth this year, 2.2 percent in 2013 and 2.9 percent the following year.
Gross kept holdings of Treasuries in his $263 billion flagship Total Return Fund steady in June at 35 percent, the highest since February, after saying that U.S. securities are still the safest bet.
Treasuries returned 2.65 percent as of July 12, according to Bank of America Merrill Lynch indexes, while the Standard & Poor’s 500 index of stocks returned 7.37 percent with reinvested dividends.
Federal Reserve policy makers now see 1.9 percent to 2.4 percent growth in 2012, down from their April forecast of 2.4 percent to 2.9 percent, according to a statement on June 20. The International Monetary Fund cut its projections on July 3 for U.S. growth to 2 percent this year and about 2.25 percent in 2013 amid a “tepid” recovery and the European debt crisis.