Greece, Ireland and Portugal should leave the euro to put their economies back on track, according to Pimco, as Europe looks set to lag global growth next year.
The three peripheral nations should adopt weaker currencies to boost their exports and later rejoin the single currency, said Andrew Bosomworth, the head of portfolio management at Pimco.
Bosomworth made the comments to German newspaper Die Welt yesterday. Pimco is the world’s largest private sector fixed income manager and its views have exerted increasing influence in the bond markets.
They were confirmed by Pimco this morning following its latest report from Mark Kiesel, a managing director at Pimco, who warned global growth would leave the eurozone trailing in its wake.
American, Australian and Canadian economies, as well as emerging markets, as set to “run faster” compared with most other developed economies in 2011, according to the latest report from Pimco.
The current European debt crisis is described as Kiesel as “sick” based on fiscal tightening and the apparent inablilty of policymakers to address the borrowing needs of sovereigns.
The sovereign debt crisis currently has less of an effect on America, according to Kiesel, which means American banks should be in a healthier position.
He predicts American real GDP to pick up toward 3-3.5 per cent in 2011 through a combination of rising stocks, improving labour market conditions and encouraging corporate profits.
The banking sector is also likely to extend credit after the most recent round of quantitative easing, he says.
The report favours American bank bonds on the assumption the decline in house prices is largely over. Bank loans too are set to become an increasingly attractive asset assuming growth strengthens and interest rates rise more aggressively.
Municipal and high yield bonds are also singled out as offering “compelling opportunities” for investors.
Emerging markets are also described as having a healthy outlook. Kiesel says this is owing to a combination of rising consumer wealth, negative real interest rates, strong capital inflows and rising wages and asset prices.
Government debt levels in these countries are also significantly lower relative to developed economies, Kiesel says.
Kiesel expects the Canadian and Australian economies to grow owing to their healthy fiscal positions and thriving resource-based export industries.