The New Normal and Shift East for Economic Growth

PIMCO believes the crisis of 2008–2009 will have a widespread and long-lasting impact on global economic growth, government policy and the interplay between developed and developing economies.javascript:void(0)

This New Normal implies lower growth, greater regulation and higher savings rates in the developed world, as well as relatively higher growth and a more prominent role in influencing global economic policy for the developing world. Along the way, lower global investment returns are likely to track slower aggregate global GDP growth. Yet investors seem to be shrugging off the systemic implications of the financial crisis and pricing many markets for an “old normal” recovery.


Positioning portfolios for secular changes can be disconcerting when short-term market moves contrast so sharply with long-term expectations. Nevertheless, given the magnitude of the shifts implied by the New Normal, investors who fail to account for them may be worse off when the cyclical and secular forces intersect. Witness the example last week in Dubai – the emirate’s investment holding company Dubai World revealed that it was seeking to extend maturities of its debt – a good reminder that high levels of country and credit differentiation will be critical in managing emerging markets (EM) assets successfully ahead.