Tags: Pimco | Economy | slow | half | Mohammed | El-Erian

Pimco: Economy Will Hit Crawl in Second Half of Year

Thursday, 08 Apr 2010 08:50 AM

Pimco co-CEO Mohammed El-Erian says growth in the U.S. economy will continue to appear healthy during the first half of 2010 because markets will bounce back amid the huge fiscal stimulus and inventory rebuilding.

“Look for growth rates to be an annualized 4 percent to 5 percent in the first half of the year,” El-Erian says.

The second half of the year is a different story, El-Erian says: Growth will likely slow in the second half to an annualized 2 percent.

“Unfortunately, we will also have persistently high unemployment,” he told MarketWatch. “That’s very unusual in the United States, which tends to have a flexible labor market.”

Investors will need to start thinking about inflation protection in 2011, El-Erian says, adding that most people underestimate what inflation can do to their savings.

“In 2010, the output gap — the difference between the actual output of an economy and its output when it is operating at capacity — will be so large that we should expect a gradual decline in inflation,” he points out. “But in 2011, the gap will close from both sides, namely a slow recovery in demand along with a destruction of supply.”

The airline industry, El-Erian observes, offers a perfect example of this: When demand falls, ticket prices go down and planes get decommissioned. “As a result, you and I are stuck traveling in crowded planes, paying higher prices,” he says.

According to Dallas Federal Reserve Bank President Richard Fisher, the U.S. economic recovery is gathering speed as business activity picks up pace, despite lingering weakness in employment, Reuters reports.

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Pimco co-CEO Mohammed El-Erian says growth in the U.S. economy will continue to appear healthy during the first half of 2010 because markets will bounce back amid the huge fiscal stimulus and inventory rebuilding. Look for growth rates to be an annualized 4 percent to 5...
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2010-50-08
Thursday, 08 Apr 2010 08:50 AM
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