In the low-growth 'new normal' of the global economy, countries need to find a way to grow that is not accompanied by the accumulation of debt, according to PIMCO head of global portfolio management Scott Mather.
"We've moved into a phase where we really anticipate for most of the developed world that growth is going to be teetering around zero," Mather said.
He added that a low-growth and low-inflation environment could create lots of opportunities for bond investors, but those opportunities meant that bonds were no longer risk-free, he added.
Countries are not going to be "pulling together" when it comes to monetary and fiscal policy any longer, he added. While there used to be the appearance of economic coordination, countries will now be uncomfortable doing the same things, Mather said.
"Several years from now, we're not going to end up in the same place where growth and inflation look the same everywhere," Mather said.
PIMCO recently surveyed 16 of its institutional clients who represent $300 billion in superannuation assets. In March, respondents were split fifty-fifty on whether US growth would be closer to zero or 3 per cent; today, 80 per cent of respondents said US economic growth would be closer to zero.
The biggest three concerns for PIMCO clients were the uncertainty in the Eurozone; the potential effects of the collapse of the Euro; and the prospect of deflation around the world. The three biggest opportunities were the rise of skilled alpha strategies; fixed income carry strategies hedged into Australian dollars; and infrastructure and infrastructure debt.
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