Economic Themes For The Year Ahead
Summary
- The most recent outlook highlights a number of factors that may contribute to a challenging investment environment ahead.
- Three key takeaways from our cyclical outlook and what can we expect looking forward for 2021.
- Fed tapering of the bond purchases is on the horizon probably starting sometime early next year. This combination of fiscal policy taking the foot somewhat off the accelerator and the Fed starting to taper could lead to some additional volatility.
Three key themes will likely drive a global economic recovery this year - and into the next: a strong rebound in economic activity, a temporary rise in inflation, and continued fiscal and monetary support.
Transcript
Tina Adatia: The most recent outlook highlights a number of factors that may contribute to a challenging investment environment ahead. What are the key themes in this year's outlook, and what can we expect looking forward for 2021?
Joachim Fels: Well, Tina, let me just highlight the three key takeaways on the macro front from our cyclical forum.
First of all, we see a very strong rebound in economic activity this year for the reasons that we discussed earlier, vaccines, fiscal policy, monetary policy support. Last year, we had to shut down important sectors of the economy. This year is the year of reopening. So that's a key driver for the outlook that we have. However, it's going to be a multi-speed recovery if you look around the globe.
So China is clearly in the lead with a growth in excess of 8%. We think this year, the U.S. won't be far behind. We're forecasting more than 7% GDP growth. You really have to go back to 1984 to find a year with similarly strong growth. So almost four decades back. Europe, also Japan lagging behind somewhat because the vaccinations are not progressing at the same pace as in the US. Also there's significant but less fiscal support than we are seeing in the US, but even in Europe and Japan, we see clearly above-trend growth this year, driven by the reopening that will also happen there later this year. And then finally, many emerging market countries are lagging and will be lagging behind.
Second, inflation. We are looking for a spike, but not a spiral. So we think there will be a temporary surge in inflation over the next few months, but we also think that we will see mean reversion in inflation rates later this year. So overall, we think beyond the near term, spike inflation will remain subdued. Having said that, we think that in the next few months, investors may be spooked a little bit by the run-up in inflation. That's why we're talking about the risk of an inflation head fake in financial markets that could lead to some volatility.
And then the third theme coming out of the forum is one of ongoing and continued massive fiscal and monetary support this year. But we think there are some question marks over next year, because fiscal policy may become somewhat less supportive as the economy recovers.
Also, Fed tapering of the bond purchases is on the horizon probably starting sometime early next year. And again, this combination of fiscal policy taking the foot somewhat off the accelerator and the Fed starting to taper could lead to some additional volatility. And this is something that could start to come on investors' radar screen over the next, say, three to six months.
Disclosure
IMPORTANT NOTICE
Please note that this video contains the opinions of the manager as of the date recorded, and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.
A word about risk: All investments contain risk and may lose value.
Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fees, and/or other costs. In addition, references to future results should not be construed as an estimate or promise of results that a client portfolio may achieve.
Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517) is authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963), PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E) and PIMCO Europe GmbH Irish Branch (Company No. 909462) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 32 of the German Banking Act (KWG). The Italian Branch, Irish Branch and Spanish Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; and (3) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and 203 to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2). The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Investment Management (Shanghai) Limited Unit 3638-39, Phase II Shanghai IFC, 8 Century Avenue, Pilot Free Trade Zone, Shanghai, 200120, China (Unified social credit code: 91310115MA1K41MU72) is registered with Asset Management Association of China as Private Fund Manager (Registration No. P1071502, Type: Other) | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association and The Investment Trusts Association, Japan. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is managed and operated independently. The reference number of business license of the company approved by the competent authority is (109) Jin Guan Tou Gu Xin Zi No. 027. 40F., No.68, Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.). Tel: +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Av. Brigadeiro Faria Lima 3477, Torre A, 5° andar São Paulo, Brazil 04538-133. | No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2021, PIMCO.
CMR2021-0420-1609482
Disclaimer
Copyright PIMCO 2021. All Rights Reserved. Investment Products: NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED.
PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2021 PIMCO
Pacific Investment Management Company LLC ("PIMCO") is an investment adviser registered with the U.S. Securities and Exchange Commission ("SEC"). PIMCO Investments LLC ("PIMCO Investments") is a broker-dealer registered with the SEC and member of the Financial Industry Regulatory Authority, Inc. ("FINRA"). PIMCO and PIMCO Investments is solely responsible for its content. PIMCO Investments is the distributor of PIMCO investment products, and any PIMCO Content relating to those investment products is the sole responsibility of PIMCO Investments.
The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of PIMCO nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement investor, contact your financial advisor or other fiduciary unrelated to PIMCO about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances.
Check the background of this firm on FINRA's BrokerCheck.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
This article was written by
