The leaders of giant bond-fund manager Pacific Investment Management Co. foresee a world of muted growth over the next three to five years amid a continuing shift toward emerging economies like China, co-chief executive Mohamed El-Erian said in his May secular outlook.
The world has changed in a manner that is unlikely to be reversed over the next few years as markets are recovering from a shock that goes beyond a cyclical flesh wound, El-Erian added, saying he doesn't project a return to the high growth and low inflation that characterized the period from 2002 to 2007.
There are insufficient demand buffers and structural reforms, he said, to provide for a spontaneous and sustainable recovery in the global economy, which has seen a shift to where the public sector provides private goods from a world where the private sector provided public goods.
As for the banking sector, El-Erian said it will be derisked, delevered and subject to greater burden sharing, leaving it a shadow of its former self. Furthermore, consolidation and shrinkage will spread beyond banks to other financial institutions and the investment management industry.
El-Erian also warned it's hard to project any imminent pickup in inflation amid the collapse in global demand and large output gap. Private components of global demand won't recover quickly and fully, he added. The historical pace of growth in potential output will face many challenges amid excessive regulation, higher taxation and government intervention.
Finally, he identified several risk factors for long-term investments Pimco will be monitoring in the next few months, including politics, the functioning of the markets, the management of public debt in industrial countries and any further erosion in the autonomy of key economic institutions.
-By Lauren Pollock, Dow Jones Newswires; 201-938-5964; lauren.pollock@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=Uf07HjH2E3kguvqrobPF6w%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
May 12, 2009 14:53 ET (18:53 GMT)
Copyright (c) 2009 Dow Jones & Company, Inc.- - 02 53 PM EDT 05-12-09
3 comments:
Mohamed is very well spoken. Thanks for posting this!
He should be the country President.
Sadiq
El Erian is the best guest ever on cnbc.
Post a Comment