Pacific Investment Management Co., the world’s largest active bond manager, said it’s optimistic about global growth over the coming 12 months as the drag from fiscal policy restraints eases.
Economic output will increase to 2.25 percent to 2.75 percent through September of next year, compared with 2.2 percent for the year ended June 30, Saumil Parikh, a portfolio manager at Newport Beach, California-based Pimco, said in a report being posted on its website today.
“Pimco’s cyclical outlook for the year ahead is cautiously optimistic,” wrote Parikh, who focuses on asset allocation, multisector fixed income and absolute-return portfolios.
U.S. and European government policy won’t hamper growth as much as in the past, private sector confidence will strengthen as global wealth increases, and central banks will use monetary policy to curb risks, according to Pimco’s report. Pimco Chief Executive Officer Mohamed El-Erian and co-Chief Investment Officer Bill Gross coined the term “new normal” in 2009 to describe an era of lower returns, heightened government regulation and shrinking U.S. clout in the world economy following the 2007-2009 financial crisis.
Expansion for the four quarters ending Sept. 30, 2014, could be hindered by a reduction of household debt relative to income, and by the increase in market interest rates in this year’s second quarter, which will cause tighter financial conditions for the global economy’s most rate-sensitive components, Parikh said.
A “successful handoff” to self-sustaining growth will depend on an increase in household income and spending as the effects of fiscal and monetary policy wane, according to Pimco.
The U.S. economy will expand by 2 percent to 2.5 percent in the coming 12 months, compared with 1.7 percent in the four quarters through June 30, as weak household income growth stemming from the low-quality nature of new jobs tempers gains, Parikh said. The euro area will experience growth of 0 percent to 0.5 percent as fiscal and monetary policy remain tight, he predicted.
China, the world’s second-largest economy, will grow 6.75 percent to 7.25 percent, Pimco estimates.
Pimco, a unit of Munich-based insurer Allianz SE, managed $1.97 trillion in assets as of June 30. Gross runs the $251 billion Pimco Total Return Fund, the biggest mutual fund in the world.