FYI | Nov 10 2011
By Greg Peel
Every March and September leading global investment manager PIMCO conducts a survey of institutional clients to gauge their level of optimism or pessimism with respect to global economic growth and inflation. The results of the September survey are now in. Not unsurprisingly, PIMCO's clients have become a lot more pessimistic than they were in March. The survey covers expectations for the US, Europe, the UK, China, Japan and Australia.
In March, when the latest round in the European crisis was yet to hit, no one was talking US double dip, and Chinese tightening was yet to cause any real fear, PIMCO's clients were divided down the middle with respect to the world's largest economy. In September (when all of the above factors were front and centre), only 20% of respondents felt optimistic about the US economy. The pessimists believed zero real GDP growth was likely over the next year.
In September a full 95% of respondents were pessimistic about Europe, down from 67% in March, with expectations being for negative 0.5% growth. September's results saw an even split over China, albeit optimistic respondents saw 9% growth compared to 7% growth for the pessimists.
In March, 58% of respondents were optimistic about Australia but that number fell to 30% in September, with 2.25% growth expected by the pessimists.
Head of PIMCO Australia, John Wilson, nevertheless notes that Australia can boast policy flexibility which other economies lack, allowing the Australian economy to be steered through difficult times. Room to move on RBA rates, fiscal opportunities and a floating currency provide such flexibility.
Wilson notes that PIMCO's Australian clients see preferred investment strategies in “alpha” (non market influenced) plays, fixed income, infrastructure, high-yielding stocks and gold.
The following table outlines the September survey results:
If you don't like the idea of slower global growth then now might be the time to get used to it. One could rightly argue that slower growth is less likely to produce asset price and credit bubbles, boom-bust cycles and market volatility, which can't be such a bad thing. But as the Conference Board notes, there are other implications to consider.
The Conference Board believes average global growth is likely to slow to 3% at least until the middle of next decade. The near term outlook is for weaker growth in developed economies, offset by ongoing strong growth in emerging economies. But as developed economies begin to recover in the medium term, emerging economies will mature and thus their average growth rates will pull back to less spectacular levels, the CB suggests.
On that basis the CB is forecasting 3.2% global growth for 2012, 3.5% for 2013-16, and 2.7% for 2017-2025. That average of around 3% for the full period is above that of the period 1980-1995 but about 50 basis points below that of 1996-2008.
Developed economy growth is expected to slow from an already low 1.6% growth in 2011 to 1.3% in 2012. Some recovery will be seen for the period 2013-16, but only to 2%. Average emerging market growth is expected to be 6.4% in 2011, falling to 5.1% in 2012 as weaker export demand impacts. Jumping ahead to 2017-25, the CB sees only 3.4% growth for the emerging world as it matures (and presumably thus will no longer be “emerging”).
The Conference Board suggests slower global growth is not a problem in itself, but rather the problem is one of a slowdown in average output per capita. It is this level which will determine whether living standards across the globe can be supported or raised. The challenge will be to find ways to raise global productivity without losing job opportunities for the masses.
Below is a table of past GDP growth numbers along with the Conference Board's immediate forecasts:
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