PIMCO is calling for slower GDP growth in 2013. This should not really be a huge shock considering the ongoing death of the cult of equities and expectations for low returns, but when PIMCO speaks people listen and sometimes just look at the comments in a vacuum. The investment giant’s Saumil Parikh says that 2013 is going to be a year where policy is at a crossroad with maturation of the global cyclical growth where strong secular growth drivers remain elusive when the global economy is in the midst of a cyclical slowdown.
Parikh’s outlook is not just for the United States, but that policies are at important crossroads in every major economy. Developed nations are struggling for a balance between cyclical stimulus and secular normality. He said, “2013 will be the year of policy change, with policymakers in major economies challenged to enact structural changes that spur private sector growth before government-balance-sheet-led growth is exhausted.”
Part of the issue is economics and part is politics. On the economics: global inventory replenishment and post-crisis productivity gains are behind us, with slowing corporate profit growth, flatlining commodity prices, and declining capital expenditures, lower industrial production, and stagnated global trade volume. On the policy side: developed countries are struggling to find the right fiscal and monetary policy, too much consumption versus investment, a growing “maldistribution” of income, and more.
Other issues addressed are rising global indebtedness along with higher global imbalances, global regulations are also on the rise, and also “deglobalization” is starting to enter the equation.
To make matters worse, PIMCO sees the United States in 2013 with a policy mix of untimely fiscal tightening and increasingly ineffective monetary easing with a mixed to relatively stable economic outlook. Here are some outlooks for 2013:
- residential investment growing by 20%–30% on the year contributing to 0.50% to 0.75% growth improvement
- Home prices are expected to keep up with inflation
- expects the “fiscal cliff” issue to pass, but resulting in a 1.25% to 1.75% drag on GDP
- most of the difficult decisions regarding long-run fiscal uncertainties will remain unresolved during 2013
- US GDP growth of only 1.25% and 1.75%.
Parikh believes that Europe does not have an active growth policy for 2013 and expects the euro zone economy to shrink between 1% and 1.5% in 2013. In China, 2013 will meet weak external demand with its GDP growth of 6.5% to 7.5%. Japan’s economy will perhaps see more interesting developments than it has for several years with a more dovish and active Bank of Japan in 2013 likely to adopt more aggressive balance sheet policies with a PIMCO forecast of 0.5% to 1.0% growth.
Full details of the Parikh outlook can be seen here. Here are some other figures on the PIMCO table below:
JON C. OGG