PIMCO Cyclical Outlook: Building Rickety Bridges to Uncertain Outcomes

September 12, 2012


PIMCO's September Cyclical Forum was held against the backdrop of some historic changes in announced and proposed monetary policy, particularly in Frankfurt, Germany. 

-Saumil H. Parikh, managing director, PIMCO

  • The probability of a deflationary left-tail outcome emanating from the eurozone has declined substantially in the short run, yet outright economic growth in the eurozone will remain elusive in 2013.
  • The much-publicized "fiscal cliff" is set to hit the U.S. economy on January 1, 2013, and could reduce U.S. aggregate demand by roughly $600 billion to $700 billion (about 4% of GDP). Our best guess is that in most election outcomes, policymakers will only allow a $200 billion to $250 billion sunset in stimulus, creating a drag on economic growth of about 1.5% of GDP in 2013.
  • We believe China's easy growth phase is over. But China has the balance sheet and the knowledge to continue executing its economic development plan, as long as political stability is maintained, income inequality is addressed, and the external demand environment does not further deteriorate.

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