SUMMARY

  • China recently introduced its new “dual circulation” economic development model, which seeks to reduce reliance on exports and foreign technology, strengthen domestic supply chains, and look to the domestic market as the main driver of China’s growth.
  • In the U.S., the longer-term outlook is for a high level of fiscal activity under any outcome of the November elections, but especially in the case of a Democratic sweep. In monetary policy, the Federal Reserve recently announced two changes to its policy framework: a flexible average inflation targeting approach, in which shortfalls from the inflation target will be made up by overshoots; and a commitment not to tighten policy because of low unemployment alone – inflation or other risks would need to be present as well.
  • The decision to embark on pan-European fiscal investments to stimulate the economy demonstrates that when it is a question of survival, Europeans will not hesitate to step up and work together.
  • In investor sentiment, many CEOs of major U.S. corporations have a relatively sober view of how long the recovery will take, but there is no sense of pessimism about getting there eventually, and no real change in long-term risk appetite.

The members of PIMCO’s Global Advisory Board, a team of world-renowned macroeconomic thinkers and former policymakers, recently joined the discussion at PIMCO’s annual Secular Forum, where they addressed critical factors likely to shape the global economy over the three- to five-year horizon. The board’s insights constitute a valuable input into PIMCO’s investment process, and the views they presented in September helped inform the latest Secular Outlook, “Escalating Disruption.” The discussion below is distilled from their far-ranging conversation.