PIMCO's Cyclical Outlook:Aftershocks of Financial Dislocation

In its latest Cyclical Outlook,composed at an investment forum by its international cadre of financial experts,PIMCO portrayed a world that is still very much feeling,and being influenced by,the shock waves from the global financial crisis.
Notwithstanding the recent calmer tone in the markets,wrote PIMCO's Joachim Fels,Global Economic Advisor,and Andrew Balls,CIO Global Fixed Income,in a PIMCO Insight,the weaker global growth economic momentum at the end of 2015/start of 2016 and the significant,though temporary,tightening in global financial conditions in January/February meant that 2016 economic growth and inflation would likely come in at or below the ranges they had forecast in December for most major economies.*
Consequently,the investment forum lowered PIMCO's forecast for calendar year 2016 global real GDP growth by a quarter-point,to a range of 2-2.5%.Actual global GDP growth was 2.8 in 2014 and 2.6 last year;their forecast sees the slowdown continuing.*
Wherever one looks around the globe,PIMCO believes,nominal and real GDP growth and,therefore,interest rates are likely to stay well below historical norms,very much in line with their New Normal concept of a world economy transformed after the global financial crisis of 2008.The New Normal,Fels and Balls explain,is characterised by both weak potential output and a lack of aggregate demand,reflecting high debt levels and an excess of global desired saving over investment-the global savings glut.This continues to provide significant headwinds for growth,not only on their secular 3-5 year horizon;but also over the cyclical 6-12 month timeframe.It underpins their expectations for a low "neutral" central bank policy-along with The New Normal,they have described The New Neutral,referring more explicitly to central bank policies converging to lower neutral rates than in past economic cycles.*
PIMCO puts the probability of a US/global recession over the next 6-12 months as at most 20%.This is because,right now,none of the typical signs of imminent collapse are flashing:no over-consumption;no over-investment;no over-heating;and no monetary overkill.In short,they expect this expansion to last,lackluster though it be.