Pimco Says U.S. Won’t Reach 3% Growth Until Second Half

Pacific Investment Management Co., manager of the world’s largest mutual fund, said a recent forecast by founder Bill Gross for 3 percent economic growth in the U.S. won’t be reached until the second half of 2013.

Growth will be 1.5 percent to 2 percent for the full year because of slower expansion in the first half triggered by fiscal policy tightening, Saumil Parikh, a portfolio manager who leads Newport Beach, California-based Pimco’s cyclical forum, said in a March report being posted on the firm’s website today. The firm said in a December report U.S. economic growth would be 1.25 percent to 1.75 percent in 2013.

Gross said last week in a Bloomberg Radio interview the U.S. was moving toward a 3 percent growth rate in real gross domestic product this year. Parikh said in an interview that rate won’t be reached until the housing recovery strengthens in the second half. Pimco in 2009 coined the term “new normal” 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.

“We want to make clear that we aren’t expecting 3 percent growth for the year as a whole, but can easily see growth approaching a 3 percent level at the end of the year,” Parikh said in the telephone interview before the report was released.

Economists expect expansion of 1.8 percent in 2013, the median forecast of 77 respondents in a Bloomberg survey. They predict growth of 1.8 percent this quarter followed by 2 percent, 2.5 percent and 2.7 percent over the next three quarters.

Housing Pickup

The biggest driver of private-sector growth in the U.S. is the housing rebound, Parikh said in the interview. Pimco anticipates a two- to three-year recovery in that market, though rising home prices will have less influence on consumer spending than they historically have, with banks reticent to lend and aging Americans wary of adding debt.

“The reason why the U.S. is watched so closely today is that if its hyperactive monetary policy combined with aggressive stimulative fiscal policy results in the U.S. economy achieving this escape velocity,” Parikh said, “then it’s likely other countries such as Japan, the U.K. and perhaps the euro zone will adopt a softer stance toward austerity.”

Pimco raised its 2013 Japanese growth forecast to 1.25 percent to 2.25 percent from 0.5 percent to 1 percent in its December report. The change is a result of Japan embarking on more-active monetary policy and new fiscal stimulus, Parikh wrote.

Europe, China

With policy makers in Europe unlikely to make substantive progress similar to the U.S. in 2013, the recession there will probably deepen, Parikh said. The euro-area economy will shrink 0.75 percent to 1.25 percent, according to the report.

China will experience expansion of 7 percent to 7.5 percent, which may not be sustainable as it focuses on investment and production rather than moving to an economy driven by services and consumer spending, Parikh said.

Pimco, a unit of Munich-based insurer Allianz SE, managed $2 trillion in assets as of Dec. 31. Gross runs the $288 billion Pimco Total Return Fund, the biggest bond fund in the world.

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