PIMCO sees higher global growth

admin | 苏州桑拿
14 Aug 2019

Pimco has joined the chorus of global investors turning bullish on global growth prospects, saying the Trump administration’s war on trade is “more symbolic than real”.
SuZhou Night Recruitment

The global bond fund manager has raised its growth forecast to between 2.75 and 3.25 per cent (a rise of 0.25 per cent on both the lower and upper estimates from December).

This is due to lower-than-expected risks of a global trade war, weakened expectations of economic upheaval in China, lower expectations of US inflation and optimistic signs on European populism after the failure of far-right candidate Geert Wilders to oust the political establishment in the recent Dutch election.

The major downside risk to the Pimco forecast is the monetary tightening taking place around the world.

“With improved growth and inflation prospects, exhausted central banks are likely to move closer to the exit from ultra-accommodative monetary policies,” wrote Pimco’s Joachim Fels and Andrew Balls.

“And it’s not certain whether highly leveraged private and public borrowers around the world will be able to keep dancing when the music stops.”

At the moment, the Federal Reserve’s statements have prepared the market for two further interest rate cuts this year.

But that’s not including the impact of the US administration’s much-mooted fiscal stimulus plans, which leaves open the possibility of the Fed rapidly changing its tune.

However, Pimco does expect this stimulus to be smaller than previously expected, and to not be finalised until early 2018.

“Repealing and replacing Obamacare will keep Congress busy for a while, and comprehensive tax reform will take time and is hard to do given the rising opposition to the border adjustment tax from the adversely affected importing industries and in the Senate. Thus, any fiscal boost is likely to be smaller and come much later.” Deals, not war

In Europe, expectations are for the European Central Bank to scale back its asset purchases by early 2018.

This “raises the spectre of sharp adjustments in euro-area sovereign yield levels and peripheral sovereign spreads over Bunds”.

Pimco’s shrugging off of the odds of a trade war is counter-intuitive, given the G20, at the urging of the United States, removed a phrase signalling its commitment to fight protectionism over the weekend.

Mr Fels told Fairfax Media the removal of the phrase was “no surprise given the protectionist leanings of the Trump administration”. But he played down its impact.

“We expect the administration to push trading partners like China for more market access for US companies rather than imposing high tariffs or naming China a currency manipulator. Trump wants to strike deals rather than starting a trade war.”

Key to Pimco’s reduced expectations on trade risks is what the administration hasn’t done despite the opportunity to do so.

Despite antagonistic rhetoric, the administration hasn’t sought to impose trade sanctions through executive orders, suggesting, Pimco’s analysts write, “that President Trump’s statements on tariffs may be more symbolic than real”.

Pimco’s head of n portfolios Robert Mead told Fairfax Media the n economy was somewhat out-of-sync with this global picture.

“Our housing market has been very strong, but is likely to slow in terms of new developments. The n consumer is excessively levered, so the RBA has limited degrees of freedom in terms of adjusting policy settings,” he said.

“Commodity prices have boomed, but the flow through to n companies and the broader n economy is limited. That leaves us with a less robust labour market, sluggish wages growth and an economy growing below potential.”

Comments are closed.