The five 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. The discussion below is distilled from their far-ranging conversation.
Q: Over the secular horizon, developments in China will likely reverberate throughout the global economy. What is the outlook for China’s policy and economic growth?
A: President Xi Jinping’s political position is likely to strengthen after the 19th National Party Congress this fall. To secure his legacy, he is pursuing two important supersecular objectives for China: to achieve low-income, developed-country status by the time he leaves office in 2022, and to achieve advanced developed-country status by 2049 (the 100th anniversary of the Communist Party). To meet these objectives, China would likely need to see annualized growth between 5%–6.5% while simultaneously transitioning the economy away from low-cost manufacturing, escaping the middle income trap, deleveraging and de-risking the financial system, avoiding too-rapid currency depreciation, maintaining political stability and satisfying people’s expectations regarding healthcare, housing, education, climate and employment. All these goals will be challenging to reconcile.
In the near term, President Xi will likely emphasize stability and growth (even if low-quality growth) to the detriment of reform efforts, though after he consolidates power as we expect this fall, growth estimates could be decreased and reform effor