Skyscrapers stand on the horizon in St. Pete Beach, Florida, U.S. (Photographer: Ty Wright/Bloomberg)

Pimco Sees More Goldilocks Growth, Recession Beyond Horizon

(Bloomberg) -- Global growth is likely to continue with no signs of a recession in the next six months to 12 months, according to an economic outlook from Pacific Investment Management Co.

“The synchronized global expansion, which shifted into higher gear last year, will therefore almost certainly enter its 10th year this June,” Joachim Fels and Andrew Balls wrote in Pimco’s report released Thursday. “Still-favorable financial conditions and fiscal support suggest that rumors of a sudden death of Goldilocks are exaggerated.”

Pimco revised upward its forecast for 2018 growth in the U.S., Europe, U.K. and China from a projection in its last outlook in December. It also lowered this year’s estimates for Mexico and India.

Policy makers will likely keep interest rates relatively low amid high levels of debt, slow productivity growth and a low saving rate.

“We continue to think that, in spite of the post-crisis recovery, economies will need lower rates than in the pre-crisis period in order to maintain growth,” Fels and Ball wrote.

While Pimco foresees continued growth over the short term, it also warned about the long-term future. The new outlook repeats the firm’s “expectation that a U.S. recession is likely at some stage over our secular three- to five-year horizon.”

For investors, recommendations include:

  • Rates: Investors should still underweight the long end of the curve and add Treasury Inflation Protected Securities as a hedge.
  • Equities: Japanese stocks have a positive outlook with cheap valuations and prospects for 20-percent-plus earnings growth. U.S. stocks are almost fully priced for growth and the benefits of tax reform.
  • Credit: Short-dated positions in select corporate credit and structured products are recommended.
  • Mortgages: A positive view of U.S. housing market leads to recommendation of mortgage-backed securities with and without government guarantees.
  • Commodities: Energy and base metals should be supported by global growth momentum.

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