PIMCO: 60% Chance of Recession in Next Five Years

cash register, not fullBond giant PIMCO has forecast that the chance of a global recession sometime in the next five years is greater than 60%. Analyst Saumil Parikh made the remark on behalf of the firm.

In a paper called "A Secular View of Assets: Surfing the Wedge," Parikh observed:

We expect global economic volatility to rise. Statistically speaking, the global economy experiences a recession every six years or so, and the frequency of global recessions tends to increase when global indebtedness is high and falling as opposed to when indebtedness is low and rising. Given that the last global recession was four years ago and also given that the global economy is significantly more indebted today than it was four years ago, we believe there is now a greater than 60% probability that we will experience another global recession in the next three to five years.

Indebtedness has, among other things, undermined the odds that nations will provide stimulus packages. In some nations, particularly in Europe, troubled nations are forbidden from providing such aid as part of the restrictions of bailout packages set by the European Union, International Monetary Fund (IMF) and European Central Bank. A number of experts, among them Christine LaGarde, head of the IMF, have objected to these provisions, arguing that Europe cannot solve its sovereign debt crisis via forcing countries to sharply reduce government spending, which leaves no options to grant tax incentives to businesses or to give aid to sectors that might lead some of the countries out of recession.


Filed under: 24/7 Wall St. Wire, International Markets

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