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PIMCO expects global growth to trough and rebound earlier than U.S. growth this year.

Mike Blake/Reuters

Recession risks have diminished in recent months, and the current window of weakness for global growth will give way to a “moderate recovery” in 2020, money manager Pacific Investment Management Co. (PIMCO) forecast on Tuesday in its 2020 outlook.

Additional global monetary easing, a “trade truce” between the United States and China, better prospects for Britain to make an orderly exit from the European Union and early signs of a rebound in the global purchasing managers’ indexes were cited by PIMCO’s Joachim Fels, global economic adviser, and Andrew Balls, chief investment officer of global fixed income, in the cyclical outlook.

“With fiscal and monetary policy now working in the same direction – further easing – in almost all major economies, the outlook for a sustained economic expansion over our cyclical horizon has improved,” they wrote.

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They expect global growth to trough and rebound earlier than U.S. growth this year, and forecast that U.S. growth momentum to lag global growth momentum at least for some time during the first half of 2020.

U.S. economic growth should slow further before picking up later this year, while the U.S. housing market should be an area of strength this year and beyond, they said.

“The decline in mortgage rates in 2019 has brought buy-to-rent and payment-to-income affordability ratios back to November, 2016, levels,” while credit score requirements for new mortgages have eased, they wrote.

While they expect global growth to pick up in 2020, they noted that corporate credit vulnerabilities “warrant close attention,” especially if growth should fall short of expectations.

Also, while the U.S. Federal Reserve and other major central banks have helped to extend the global expansion by adding stimulus, policy makers will have less policy capacity to manoeuvre when the next economic downturn hits, they wrote in the outlook.

According to the outlook, PIMCO expects to have a modest overweight to equities in its asset allocation portfolios.

“Considering the outlook, we seek to invest with a bias to higher-quality positions, a very close focus on portfolio liquidity, and a diversified approach to generating income,” PIMCO said in its outlook.

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With a file from The Globe and Mail

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