by Chris Becker
One of the world’s largest funds with nearly $2 trillion under management, PIMCO, recently gave its views on the global economy and specifically China and Australia, downgrading growth forecasts for each, well below the consensus view.
Here are some excerpts from their site:
- With ongoing growth slowdowns in China and Japan, the region’s two biggest economies, our forecast is for lower growth for Asia as a whole.
- The Chinese slowdown had the most influence on our forecast. The high frequency data has not been particularly good over the last few months, and after our discussion at the Cyclical Forum, we downgraded our forecast for growth in China over the next 12 months or so.
- We also think rising geopolitical and trade tensions throughout the world, including in Asia, are having a negative effect on the growth trajectory for the region as well as the global economy.
- China is in the midst of a multi-year transition away from a credit-intensive growth model toward a more balanced economy. Policymakers prefer slower but more sustained growth around 7%, while making structural reform a priority, and wish to only deploy stimulus in reaction to disruptive macro instability.
- From a cyclical standpoint, the recent selective mini-easing will not be powerful enough to offset the weakness in the property market.
- In the next 12 months, we project GDP growth slowing from 7.5% currently to about 6.5%. The reactive policy easing will only partly offset cyclical and structural adjustment pressures.
This doom-mongering of course will have an effect on the Australian economy, as PIMCO states:
- Australia continues to face significant challenges over the next few years as the economy rebalances away from mining-assisted growth.
- While it is true that headline real GDP growth has managed to remain close to trend, this masks a meaningful change in the composition of this growth; domestic demand is growing only modestly due to the decline in mining investment, which has been offset more recently by increasing bulk commodity exports as the resource investment projects come on line.
- This structural shift in the composition of growth away from mining investment has only just begun and will continue for a couple of years yet.
- Over the next year, we expect growth to be a bit below trend in the range of 2.5%–3.0%, with risks to that outlook skewed to the downside.
- Australia’s economic fortunes have become increasingly tethered to Asia over the past decade, and we expect slower growth in China and lower bulk commodity prices to offset the improved outlook for the U.S.
- Our base case is that monetary policy remains unchanged over the cyclical horizon, and consistent with our growth outlook, risks remain skewed to the downside.
It’s this kind of hyperbole, instead of reasoned risk analysis, from the likes of the RBA, the Pascometer and “Mad” Adam from BS that makes me angry!
Maybe the economic/business commentariat will instead just focus on the political machinations within PIMCO – Bill Gross’ sudden departure recently – so we can push this outrageous commentary to the back page.
3, 2, 1:
How Bill Gross became too hot to handle for PIMCO – Sydney Morning Herald
Relief as Bill Gross departs PIMCO – The Australian