PIMCO: 2017 GDP to be Above Trend in 'Stable, But Not Secure' World

Dec 15 2016 | 10:15pm ET

By Jennifer Ablan (Reuters) - U.S. GDP could grow in an above-trend 2 percent–2.5 percent channel in 2017, twice the annualized growth rate realized from the fourth quarter of 2015 through the second quarter of 2016, but below the 3.2 percent realized in the third quarter of 2016, PIMCO said on Thursday.

In its annual outlook report, PIMCO, one of the largest asset managers in the United States, said its higher GDP forecast is based on business investment snapping back, helped by higher energy prices and more clarity on corporate tax reform.

"Consumer spending is supported by a further decline in unemployment, rising wages and expectations of personal income tax cuts to be enacted at the end of 2017," authors Joachim Fels and Andrew Balls wrote in the report.

Balls, the asset manager's chief investment officer of global fixed income, and Fels, its global economic advisor, said headline Consumer Price Index inflation will rise to converge with core inflation above 2 percent and the Federal Reserve will manage to raise interest rates two or three times during 2017 "with risks to the upside."

PIMCO, a unit of Allianz, characterized the world as "stable but not secure."

"The only certainty in our view is that the tails of the distribution of potential macro outcomes have become fatter. Left-tail risks are defined by rising debt, monetary policy exhaustion and the populism-powered transition from globalization to de-globalization," Balls and Fels wrote.

"By contrast, right-tail opportunities may emerge from potential deregulation, awakening animal spirits and the accelerating transition from exhausted monetary to growth-supportive fiscal policies."

PIMCO, which oversees more than $1.55 trillion in assets as of Sept. 30, said with markets prone to overshooting and undershooting, "better opportunities to deploy liquidity should emerge in the course of 2017."


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