Geopolitical risks are rising around the world and dragging down the global economy, according to an investment outlook written by Scott Mather and Greg Sharenow of PIMCO.
Mather is CIO for U.S. core strategies at PIMCO and one of three new managers of the Total Return Fund after Bill Gross’ sudden move to Janus. Sharenow is an executive vice president at PIMCO.
They argue that there are three “clear policy tools” that could help counter the admittedly “extremely complicated” problems geopolitical risks create, particularly regarding energy.
First, European central banks and governments should coordinate their efforts to offset negative economic effects. Further, leaders in Europe should develop policies to wean themselves off Russian energy sources.
Finally, the United States should revisit its “long-standing policy against oil exports” and position itself as an energy supplier.
Europe is in a tenuous position, according to Mather and Sharenow, who called its economic recovery “fragile.” Although the region started 2014 with optimism, in just six months, confidence and growth have both fallen, and the disinflationary forces in play at the beginning of the year haven’t improved.
The authors predict that if the situation in Ukraine remains frozen, growth in Europe will be around 0.3% of GDP. However, if the conflict escalates and sanctions are increased, those negative effects could spread from direct trade to energy price and supply.