October 20, 2010

PIMCO Forecasts Minimal U.S. GDP Growth for 2011

Doubling down on 'new normal' concept, fund firm predicts 1.75% growth

The U.S. economy will disappoint investors by expanding at a rate of 1.75% over the next year, said Ramin Toloui of Pacific Investment Management Co. (PIMCO), which runs the world’s biggest bond fund.

The risks are skewed toward even slower growth, Toloui, an emerging markets portfolio manager, said on a conference call and reported by Bloomberg. Growth will fall short of the consensus forecast, which is 2.6% for the year ahead, according to PIMCO. Investors should add to their emerging-market holdings, Toloui said.

“We’re still seeing a tentativeness in the financial sector to take risk” in the U.S., said Toloui, speaking from PIMCO’s head office in Newport Beach, Calif. “The overall alignment of facts point toward a much more cautious conclusion about the trajectory of the U.S. economy.”

Bloomberg noted Toloui spoke as Federal Reserve officials debated whether to increase the central bank’s Treasury purchases to stimulate the economy. Bloomberg said China raised borrowing costs on Tuesday for the first time since 2007, sparking speculation the decision would slow one of the engines of the global economic expansion.

Japan will continue to have the lowest growth in the world, Toloui said.

Emerging markets will outperform developed ones because they have lower levels of debt, greater capacity to expand private demand and bigger infrastructure needs that will require government investment, according to PIMCO.

This doesn’t suggest a golden age for emerging markets,” Toloui said. “Emerging-market growth will be impaired by difficulties in the industrial world.”

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