The world economy will enjoy faster growth next year, as improvement in the U.S. and the euro area offsets slowdowns in China and Japan, said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co.
The Newport Beach, California-based asset manager said the world economy is likely to expand 2.5 percent to 3 percent in 2014, up from 2.3 percent this year. U.S. growth will accelerate to 2.25 percent to 2.75 percent from 1.8 percent.
“The U.S. economy is healing,” he said in an interview on 10 December. “Household balance sheets are in a better place.”
Pimco, which manages $1.97 trillion in assets, sees Chinese growth slowing to 6.75 percent to 7.25 percent from 7.8 percent over the last 12 months, according to El-Erian. Japan’s economy will expand 1 percent to 1.5 percent, down from 2.4 percent in 2013.
He said it’s virtually certain the Federal Reserve will begin moderating its asset purchases by the end of March, with a 50-50 chance of a move next week. He said the Fed is likely to couple any tapering announcement with a cut in the interest rate it pays on banks’ excess reserves and a strengthened commitment to keep monetary policy easy for an extended period.
The euro-area’s economy will expand by 0.25 percent to 0.75 percent in 2014, after contracting 0.4 percent this year, he said.
The Pimco executive said he was heartened by the broad- based improvement in the U.S. job market last month. Payrolls increased by 203,000, while the unemployment rate fell to 7 percent from 7.3 percent in October, the Labor Department reported on December 6. The employment-to-population rate also rose while hourly earnings increased.
Even as the economy improves next year, it won’t achieve “escape velocity,” according to El-Erian. The big missing ingredient is stepped-up capital spending by companies.
“We have yet to see business investment really pick up,” he said. “Companies still prefer to use their excess cash for financial engineering” such as buying back shares or boosting dividends.
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