Pacific Investment Management Co., manager of the world’s largest mutual fund, said global growth will be hampered next year by a slowdown in the U.S. economy.
Global growth will slow to 1.3 percent to 1.8 percent from about 2 percent this year as the private sector isn’t healthy enough to step in and extend credit amid deleveraging, Saumil Parikh, a portfolio manager who leads Newport Beach, California-based Pimco’s cyclical forum, said in a December report being posted on the firm’s website today. Economists expect growth of 2.5 percent in 2013, the average forecast in a Bloomberg survey.
“Central banks, while they are effective in boosting asset prices, we think gradually they’re losing effectiveness in helping the real economy,” Parikh said in a telephone interview before the report was released. “The low growth rate of corporate profits and the low rate of investment means a near stall speed of the global economy.”
U.S. economic growth will drop to 1.25 to 1.75 percent in 2013 from 2.2 percent in the four quarters ended Sept. 30 because of “a policy mix of untimely fiscal tightening and increasingly ineffective monetary easing,” Parikh said in the report. Economists predict 2 percent growth for the U.S. in 2013 for the full year, the average of 79 responses in a Bloomberg survey.
Growth will be buoyed by residential investment and an increase in home prices, which will support consumption in the U.S. economy as long as interest rates remain low, he said.
European Central Bank President Mario Draghi’s plan for an unlimited bond-buying program to fight speculation of a currency breakup was positive, Parikh said. Even so, fiscal austerity will continue to be a drag on growth in 2013 as the euro-area economy shrinks 1 percent to 1.5 percent, he predicted.
Pimco increased its outlook for China next year, saying it will experience growth of 6.5 percent to 7.5 percent, compared with an estimate of 6.5 percent to 7 percent in a report from September. Beyond 2013, the world’s second-largest economy won’t be able to meet that target without making structural changes such as giving security to an aging population planning for retirement, Parikh wrote.
In Japan, Pimco is forecasting growth of 0.5 percent to 1 percent, compared with 0 percent in 2012, as the Bank of Japan is expected to adopt more-aggressive buying of assets to raise inflation expectations.
The $285 billion Pimco Total Return Fund, managed by Bill Gross, is the industry’s biggest mutual fund.