The global economy has avoided deflation and is growing fast enough to avoid ‘stalling’, says Pimco – but growth will remain low for the next three to five years.
In its June 2016 Secular Outlook meeting, US fund manager Pimco said that in the post-GFC economy, growth is “just fast enough to avoid stall speed”.
The current state of affairs is likely to continue, said Pimco, given there is “no evident or prospective source of productivity or organic demand that would support a baseline for more robust expansion”.
“Deflation has been avoided and output gaps in many major economies are closing, but few if any major central banks today are even hitting their 2 per cent inflation targets, let alone overshooting them,” said Pimco.
The global economy has “plodded along” and avoided a recession since 2009, with the system only averting collapse because of zero or negative interest policy rates in many countries and the “gusher of liquidity” provided by central bank quantitative easing programs, said Pimco.
“One plausible scenario, and indeed this remains the PIMCO baseline case, is that a version of this status quo simply continues and evolves gradually for the next three to five years,” it said.
The “baseline view” for the US is GDP growth at or slightly above trend of 1.5 to 2 per cent per year, with inflation fluctuating around the 2 per cent mark, said Pimco.
Europe is likely to experience similar growth, while China will experience a “managed slowdown”, with growth between 5 and 6 per cent and inflation around 2 per cent, Pimco said.