The United States and Europe are on the brink of recession as the coronavirus epidemic continues to play havoc with demand and supply, according to a top PIMCO analyst.
The Sky Is Falling
Joachim Fels, the global chief economic adviser at Pacific Investment Co. (PIMCO), said, “The worst for the economy is still to come over the next several months.”
He attributes the economic downturn to a fall in Chinese manufacturing and a weaker market for travel-related services.
Other analysts, too, have joined in the chorus of doom and gloom. Chris Rupkey of MUFG Union Bank sounded the alarm saying, “The sky is falling, get out, get out while you can. Wall Street’s woes have to eventually hit Main Street’s economy hard. Bet on it,” reported Bloomberg.
Rate Cuts On The Horizon
Fels predicted further rate cuts by the U.S. Federal Reserve along with central banks worldwide, including those in emerging markets. On rates, Fels says, “Expect at least another 50 basis points of rate cuts from the Federal Reserve, with a distinct possibility of a return to zero and a resumption of asset purchases.” He noted that central banks have “less ammunition to draw from,” and there are vulnerabilities in riskier parts of corporate credit markets. He advised caution on risk assets and asked for investors’ focus on liquidity and capital preservation instead.
The 2020 Recession Predicted in 2016
Interestingly, Fels published a blog on the PIMCO website titled “The Recession of 2020”, which was published in March 2016. He confessed that the title was not a prediction, but a lure to entice subscribers to read yet another piece on the “risk of recession.” Fels observed, “Even six to 12 months ahead, it is extremely difficult to call a recession correctly – in fact, most economists forecast a recession only after it has started.”