PIMCO 2020 expectations: lagging US economy and strong EM currencies

US economic growth is likely to slow down in the first half of the year, despite the dwindling global recession and tensions between the US and China. Pacific Investment Management believes that, taking into account the central banks. The slowdown in growth is expected to occur independently of banks’ current free policy.

“Just as the US has lagged behind the global economic growth cycle in 2018 and 2019, so in the first half of this year, we expect global growth to outpace that of the US.” – commented Joachim Fels, Chief Macroeconomic Advisor and Andrew Balls, Chief Investment Strategist at PIMCO.

The bond-trading giant said in December 2018 that the chance of a recession was 30% over the next 12 months. However, the new PIMCO report does not include such a forecast, but warns that when the recession comes, it will be worse than the previous one because central banks already have less room for maneuver. And while the central banks will have virtually no ammunition, corporations’ aggressive risk policies and high household spending will have a negative effect on them.

Other expectations of the company include:

  • Expectations for US GDP to slow to 1.5% – 2% in 2020 from 2.3% in 2019, with more growth coming in H2 by 2020. Political uncertainty surrounding the US presidential election may make investors hesitate to borrow more money. aggressive moves, especially if policies for higher taxes and tougher regulations enter
  • GDP growth prospects outside the US are 0.75% – 1.25% for the Eurozone and the UK, 0.25% – 0.75% for Japan and 5% – 6% for China
  • PIMCO expects the preferred sector this year to be financial rather than industrial
  • Central banks will support a policy of rising inflation, which means a rise in the yield curve in the US and around the world
  • For currencies, EM currencies are expected to do better against the USD, preferring to hold long positions against the yen on a risk-off background
  • PIMCO expects investors to still strive to invest stocks in the construction of high-value portfolios, despite excessively high valuations and overvalued shares

Source: Bloomberg Finance L.P.

Graphs: Used with permission of Bloomberg Finance L.P.

 Trader Milko Zashev

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