Investment experts at global fixed-income investment management firm PIMCO warned that there are three major risks to the global economy’s recovery in 2021 and that it is not advisable to be overly optimistic, financial website MarketWatch reported.
In PIMCO’s 2021 outlook report released on the 12th, the firm’s global economic advisor Joachim Fels and global fixed-income investment chief Andrew Balls said the next 12 to 18 months are not “a time for excessive optimism. They pointed out that although loose fiscal and monetary policy to help support the stock market and corporate bond market, these positive has been risky assets digested all, if the recovery performance is not as expected, investors may be hurt.
In particular, Fayose and Boies point out three major risks that could deflate hopes for “reflation”: deleveraging in mainland China, fiscal weakness, and the scarring of a sinking economy driven by the new pneumonia (CCP virus) epidemic.
They explain that a major risk is that policymaking officials in major economies may be reluctant to continue to launch fiscal stimulus, causing the economy to gradually lose support, which could make the recovery unsustainable in the second half of 2021 and 2022.
The report notes that the “reality of large deficits” could raise concerns among government officials in developed economies, leading them to cut spending and scale back debt purchases.
Another concern is how much force China will put into deleveraging, which could hamper the global recovery if it significantly curbs credit growth.
The Pinho team believes that Beijing should strike a balance between deleveraging and supporting businesses if it wants to avoid jeopardizing growth, although striking a balance “in this highly leveraged $14 trillion economy” is quite tricky. Excessive tightening could lead to a sharper-than-expected slowdown in growth, which would have a negative impact on the global economy, as well as on industries that rely heavily on Chinese demand.
A third concern is whether the epidemic-driven behavioral changes will last. If consumers become more cautious and businesses become more reluctant to invest in the future, Pinho’s team believes economists may have to revise downward their originally optimistic economic growth forecasts.
A post-epidemic recovery will not trigger another decade-long long market,” Pinho said. Rather, we expect market conditions to turn difficult once the straightforward epidemic recovery theme trades off.
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