Is the U.S Economy Really Set for Recovery?
Mohammed A. El-Erian, the CEO of PIMCO, the world’s biggest mutual fund, is not very optimistic about the way the U.S economy is recovering from the global financial crisis.
According to him, the investors have been wrong in analyzing the orderly withdrawal of stimulus measures provided by the government, a rebound of bank lending, and other government policies to restore growth. Wall Street analysts expect that Standard & Poor’s 500 will rise 10% in 2010. He says on Bloomberg that Wall Street projections for 2010 will not prove to be right and the prices will slump. The decline in the stock market witnessed over the last eleven months may further decline.
The Standard & Poor’s 500 Index fell 3.7% in January, which was more than any month since February 2009. This was in reaction to China’s policy of setting higher reserves for lenders and Barack Obama’s policies of reducing risk taking by banks. The MSCI Emerging Markets Index also lost 5.7 percent last month. The employment levels also do not seem to be improving, which is hampering the overall growth of the economy.
El-Erian sees January’s global equity sell off as a flag that has marked the beginning of a disappointing year for several asset classes. The global financial crisis has increased the levels of public debt and budget deficit of the country. The U.S government’s budget deficit in the fiscal year ending September 30th was a record amount of $1.42 trillion.
El-Erian however says that due to increased government regulation, lower consumption and a smaller role for the U.S in the global economy, the investors will get returns that trail the historical average. He predicts that the GDP will expand 2.7 % in 2010 and 2.9% in 2011.
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