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PIMCO Chief Warns About Potential US Recession, ‘Significant Growth Slowdown’

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PIMCO Chief Warns About Potential US Recession, ‘Significant Growth Slowdown’
A trader works on the floor of the New York Stock Exchange in this undated file photo. Traditional indicators point to an upcoming recession. (Mario Tama/Getty Images)
Naveen Athrappully
6/30/2022
Updated:
6/30/2022
0:00

Andrew Balls from investment firm PIMCO has warned about the possibility of a recession in the United States, with Europe likely to face a similar situation.

The chance of America slipping into a recession over the next 12 months is “probably more likely than not,” the global chief investment officer for fixed income at PIMCO said while speaking at a webinar on June 30, according to Reuters. He put the recession probability close to 50 percent or slightly higher.

“A recession is not the only important thing. You’re clearly going to see a significant growth slowdown,” Balls said.

“The inflation profile in the short term is very important. Central banks are focused on inflation credibility.” He described the rate hikes by the U.S. Federal Reserve as “reasonable.”

Balls also predicted Europe will be in a recession, with chances being a bit higher than in the United States. In Europe, Balls expects rates to be hiked as planned. “But it’s really not clear that they get as far as the market is pricing in,” he said.

Balls’s recession prediction comes as the United States saw a dismal economic performance in the first quarter 0f 2022, with gross domestic product decreasing by 1.6 percent, according to latest data from the Bureau of Economic Analysis.
In a June 30 tweet, Sven Henrich, the founder of NorthmanTrader, said that the only way to prevent a recession is to see a “quick reversal” in inflation data this summer, as well as a “resulting Fed pivot in form of a ‘pause’ accompanied by rapidly improving consumer sentiment.” Otherwise, he sees a “sizable recession” on the horizon.

Profit Recession and Employee Terminations

Amid talks of economic recession, some experts are also warning about profit squeeze within American businesses.
In an interview on the Wealthion program, MacroMavens founder and economist Stephanie Pomboy spoke of a corporate profit proxy gauge that plots the difference over time between two separate inflation measures—the consumer price index (CPI) and the producer price index (PPI).

Pomboy calls this her “profit proxy.” In the last year, the gap between CPI and PPI has widened, implying “the most acute margin squeeze since the 1970s,” she said.

The readings imply a looming “profit recession” for American businesses. “It’s not only forecasting a profit recession, it’s forecasting the worst profit recession in 50 years,” she added.

Many businesses have also announced large layoffs, raising concerns about an economic recession. In early June, Tesla CEO Elon Musk announced plans to terminate 10 percent of the company’s salaried workers. In an earlier email to executives discussing the plan, Musk had expressed a “super bad feeling” about the economy, according to CNBC.

Cryptocurrency firm Coinbase announced plans to terminate about a fifth of its workforce, amounting to 1,100 employees, in mid-June. Netflix is laying off 300 workers, and real estate firms Redfin and Compass announced staffing cuts of 8 percent and 10 percent, respectively.