Looking ahead, we see ongoing recession in the eurozone and stagnation in the UK. We expect the eurozone economy to contract by 1% to 1.5% over the next four quarters – well below the consensus – driven by a deep recession and hampered by attempts at fiscal retrenchment in the periphery.
-Andrew Balls, managing director and head of European portfolio management, PIMCO
- Policy developments – in particular, the European Central Bank’s acceptance of its role as a lender of last resort – have helped to normalize European financial markets but been insufficient to promote decent growth.
- Eurozone leaders recently laid out a long-term roadmap to achieve stability, but the plan faces great execution risk, technically and politically, and in cross-border coordination.
- We continue to take a cautious approach and underweight European credit risk and European financials in general, looking for specific opportunities rather than broad exposure.
In the following interview, Andrew Balls, managing director and head of European portfolio management, highlights the conclusions from PIMCO’s quarterly Cyclical Forum in December 2012 and how they influence the firm’s European investment strategy and the unique challenges of forecasting the coming months given the European Central Bank’s (ECB) policy actions and pessimistic outlook for the eurozone in 2013.