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April 25, 2014 at 10:25 AM
The era of sluggish growth characterized by Pacific Investment Management Co. as the “new normal” is ending, according to one of the firm’s deputy chief investment officers.
“Our view is that what you’ll see in next the few years is we’re going to head back to a new destination,” Scott Mather, head of global fund management and one of PIMCO’s six deputy chief investment officers, said in a Bloomberg Surveillance interview with Tom Keene and Michael McKee. The firm’s forecast for U.S. growth has increased to the high 2% level, “which is better than sub-2% level of growth that we’ve experienced for several years,” Mather said.
PIMCO, manager of the world’s largest bond fund, outlined the “new normal” scenario at its annual forum in May 2009 after the worst financial crisis since the Great Depression plunged the U.S. into recession. The Newport Beach, California- based firm’s co-founder and chief investment officer Bill Gross and the firm’s former Chief Executive Officer Mohamed El-Erian popularized the term and predicted the economy would expand at a below-average pace for the next three to five years as growth in developed countries slows and amid the “heavy hand of government.”
“We’ve already left the most intense period of deleveraging that really created all sorts of pressures and adjustments that needed to happen in the economy,” Mather said today.
Increasing Optimism
PIMCO has been moving toward a more optimistic view of the economy since at least the beginning of 2013. In a March outlook it forecast U.S. growth of between 2.5% and 3%, as public sector revenues increased, pressures from taxes eased and consumption improved.
This moved the firm more in line with other economists, who project U.S. gross domestic product expansion of 2.7% in 2014, according to the average estimate of 78 responses in a Bloomberg survey. The U.S. grew 1.9% last year after expanding 2.8% in 2012.
Americans are growing more upbeat about the economy as near-record stock prices, higher property values and lower unemployment help bolster household finances. Further strides in the labor market that generate bigger wage gains would provide additional impetus for the consumer spending that makes up almost 70% of the economy. Rising Yields
