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PIMCO lowers GDP growth rate

Australia, together with other rich countries, can expect economic activity to slow down in 2022 as coronavirus outbreaks continue to put a spanner in the works.

Fund manager PIMCO has downgraded its developed markets outlook for countries that also include the UK, US, Canada and Japan.

Gross domestic product growth among these economies has been downgraded from 5% in 2021 to 4% this year at an annual average pace.

The spread of the delta variant in the second half of 2021 constrained output across various economies and will likely continue, PIMCO said.

However, this is expected to be largely temporary. Growth reaccelerated in the fourth quarter of 2021 in the US and Japan. Meanwhile, Europe, which suffered the economic effects of another outbreak in the fourth quarter, is expected to reaccelerate in early 2022.

The International Monetary Fund forecasts that Australia's GDP will grow 4.1% this year on the back of increased business activity and international borders reopening.

However, local outbreaks can derail economic activity. Other risks the country faces include prolonged global supply chain disruptions, tighter global financial conditions, geopolitical tensions, a house price correction, and climate-related events.

As for the labour market, PIMCO thinks its recovery has been uneven and varied among developed countries.

It predicts a tighter US labour market ahead, together with Australia and the UK.

"We see several likely reasons why the US stands out. First, the pandemic response relied more heavily on unemployment insurance than furlough schemes, resulting in lower job attachment. Second, according to several surveys, US households have higher health anxiety, likely contributing to a larger fall in labour force participation," PIMCO said.

Read more: PIMCOInternational Monetary Fund