PIMCO Cyclical Outlook: At Policy Crossroads

December 11, 2012

Global indebtedness continues to rise amid higher global imbalances. Developed countries, in general, continue to rely on consumption growth driven by ultra-loose fiscal and monetary policies, which transfer debt from private balance sheets to public balance sheets, endangering future economic growth to deliver outcomes today.
-Saumil Parikh, managing director, PIMCO


  • The maturation of the global cyclical growth phase suggests we look to a handoff to more secular drivers of growth. But strong secular drivers remain elusive due to the continuation of New Normal headwinds.
  • Policies are at important crossroads in every major economy. Developed countries are struggling to find the right fiscal and monetary policy mix between cyclical stimulus and secular normality, while developing economies’ export-led models face a multitude of pressures.
  • 2013 will be the year of policy change, with policymakers in major economies challenged to enact structural changes that spur private sector growth before government-balance-sheet-led growth is exhausted.

The global economy is in the midst of a cyclical slowdown. The slowdown – visible in real growth and inflation across all major economies – is driven in part by economics and in part by politics.

On the economics front, the cyclical tailwinds from global inventory replenishment and post-crisis productivity gains are behind us. This is most evident in slowing corporate profit growth, flatlining commodity prices, and declining capital expenditures and industrial production in recent months. Global trade volumes, one of the best indicators of where we are in the business cycle, have also stagnated recently.

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