Europe may contract 1 percent to
1.5 percent in the next 12 months with the private sector unable
to borrow and austerity policies limiting growth, according to
Pacific Investment Management Co.’s Mohamed El-Erian.
“The private sector is still starved for credit,” El-
Erian, the chief executive officer of the world’s largest
manager of bond funds, said in a “Bloomberg Surveillance”
radio interview with Tom Keene. “Given the austerity in place,
the economy will contract, which is bad for unemployment,
especially youth unemployment.”
Pimco’s recession forecast is deeper than the official
European Central Bank estimate, which the central bank revised
lower at last week’s policy meeting. The ECB said the economy
will contract 0.5 percent this year instead of the 0.3 percent
projected three months ago, with ECB President Mario Draghi
blaming an overhang from the bigger shrinkage in the final
quarter of last year.
Ireland’s first sale of 10-year government bonds today
since the nation’s 2010 bailout is a sign of the gradual healing
in Europe’s financial sector, El-Erian said. Ireland had made
structural reforms such as nationalizing banks that must be
embraced by the rest of Europe, he said.
Ireland’s Dublin-based debt agency increased the planned
sale of bonds to 5 billion euros ($6.5 billion), in its first
10-year debt issue since the international rescue, according a
person familiar with the matter, who declined to be identified
because the results aren’t yet public. The agency had planned to
sell about 3 billion euros of bonds.
“Irish society understood something early on,” El-Erian
said. “You need collective action to bring the country back on
path. In Italy and Spain, you are seeing populations question
traditional parties and the political order.”
The 17-nation euro declined against a majority of its most-
traded peers as borrowing costs increased at an Italian
government-debt auction amid concern a political deadlock will
derail plans to fix the nation’s finances. The 3.32 billion
euros of the 2015 note were sold at a yield of 2.48 percent, up
from the 2.30 percent at the prior auction on Feb. 13.
The dollar rose to a three-month high versus the euro after
a report showed U.S. retail sales in February increased the most
in five months. The 1.1 percent advance in retail sales exceeded
all projections in a Bloomberg survey and followed a revised 0.2
percent gain in January, Commerce Department figures showed
today in Washington.
The U.S. will grow 1.5 to 2 percent in the next 12 months,
with further expansion stymied by congressional “dysfunction”
The retail sales figures follow reports that the world’s
largest economy gained 236,000 jobs in February and housing data
improved. The only thing holding back the U.S. economy, El-Erian
said, was uncertainty caused by the U.S. Congress.
“If the economy was left to its own devices, we would see
the growth rate increase to three percent toward the end of the
year,” El-Erian said. “Unfortunately, the economy is not left
to its own devices and is undermined by congressional
Pimco founder Bill Gross, who serves as co-chief investment
officer with El-Erian, said in a Bloomberg interview on March 8
that the U.S. is moving toward a 3 percent growth rate in 2013
because of the U.S. housing recovery.
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Dave Liedtka at email@example.com
Europe to Contract as Much as 1.5%, El-Erian Says: Tom Keene – Bloomberg