Tags: Pimco | economy | oil | investing

Pimco Sees Global Growth Rising in 2015, Boosted by Lower Oil

Thursday, 18 Dec 2014 12:13 PM

Pacific Investment Management Co. expects global growth to accelerate in 2015 to around 2.75 percent from around plus 2.5 percent this year, on expectations that supply-driven declines in oil prices were fundamentally positive, the bond giant said on Thursday in its year-end Cyclical Forum outlook report.

Pimco said its view that the outlook for the U.S. economy is incrementally positive is backed by former Federal Reserve Chairman Ben Bernanke, who participated in Pimco's Cyclical Forum last week at its headquarters in Newport Beach, California.

Pimco, which has $1.87 trillion in assets under management, said its view reflects "improving household finances and confidence as well as increasing evidence that the economic recovery is becoming self-sustaining and broad-based."

In addition, Pimco said, "Bernanke suggested that monetary policymakers are likely to remain deliberate. They will look past the drop in headline inflation in the U.S. next year, and will remain focused on the level and momentum of real growth as well as the progress of core inflation toward target in determining the proper future course of monetary policy."

Pimco said it expects economic growth in the United States to grow between 2.75 percent and 3.25 percent in 2015, up from an average of 2.4 percent this year.

On Wednesday, the Federal Reserve offered a strong signal that it was on track to raise interest rates sometime next year, altering a pledge to keep rates near zero for a "considerable time" in a show of confidence in the U.S. economy.

The Fed said that inflation remains low, in part because of falling energy prices, but expects it to rise "as the transitory effects of lower energy prices and other factors dissipate."

Pimco's energy market experts said 70 percent of the drop in the price of oil is driven by upside surprises in supply growth, and some 30 percent and 40 percent of the reduction in demand growth is coming from increased energy productivity, such as via fuel-efficient vehicles, rather than slower economic growth.

Pimco's group chief investment officer, Dan Ivascyn, who succeeded Bill Gross, said supply-driven declines in oil are a boost for a majority of global economies, which is why Pimco expects global growth to accelerate to around plus 2.75 percent in 2015 from plus 2.5 percent this year.

"Declining oil prices will have a clear downside impact on global inflation readings next year," Ivascyn said. "In most developed economies, headline inflation will likely go into negative readings in the early part of 2015, only to bounce back toward positive core inflation readings as we go into late 2015 and early 2016."

Ivascyn said Pimco finds Treasury inflation-protected securities "attractively valued given their recent underperformance.

"Although we expect headline inflation (year-over-year) to trough below the zero bound in the next few months, this is more than reflected in TIPS valuations," he said.

Last week, Gross, the co-founder of Pimco and now portfolio manager at Janus Capital Group Inc, said on a webcast that said Treasury inflation-protected securities "are getting pretty attractive" because there is now limited downside in terms of price.

© 2017 Thomson/Reuters. All rights reserved.

 
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Pacific Investment Management Co. expects global growth to accelerate in 2015 to around 2.75 percent from around plus 2.5 percent this year.
Pimco, economy, oil, investing
508
2014-13-18
Thursday, 18 Dec 2014 12:13 PM
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