PIMCO’s quarterly Cyclical Forum was held earlier this month to evaluate and assess the state of the global economy, to reach consensus on the near-term macroeconomic outlook, and to explore the tail risks to that outlook.
Over the next 12 months we expect the pace of global economic growth to rise modestly, with GDP growth in a range of 2.5% to 3%. Our outlook for modestly stronger growth in the eurozone, U.S. and Japan is offset by the expectation of slower growth in China.
As for inflation, 2015 is the year when most global central banks are doubling down on monetary accommodation to stabilize inflation and avoid deflation. We have seen a wave of monetary policy accommodation and we expect more to follow. The Federal Reserve, by contrast, has clearly signaled its intention to embark on a monetary policy tightening cycle in 2015.
Expectations for a low New Neutral policy rate at the Fed compared with historical experience remain an important anchor for global asset markets. But a challenge in terms of investment strategy is that this expectation is fully priced into global fixed income and equity markets. In the U.S. and in some other countries there is a strong case that markets need to price in more risk premium compared with a low-for-long baseline.