2017 Outlook and Investment Themes

Timely insights and actionable solutions related to our outlook for the global economy and markets

Outlook and Investment Themes Nordics

Benign baseline but zero room for complacency

Our cyclical baseline is for a continued global economic expansion, mostly supportive monetary and fiscal policies and broadly range-bound markets. Despite this benign baseline, there is little room for complacency as we are concerned about a number of risks, including the diminishing returns of monetary easing and the longer term consequences of rising populism.

Volatility likely on the rise in 2017

The recent bout of market volatility that followed the U.S election may be a guide to what lies ahead: occasional regime switches between periods of relative calm and periods of rising volatility. Going forward, central bank policy may not limit volatility to the extent it has over the past several years, and we believe that the greater uncertainty could translate into higher risk premia, warranting a more cautious portfolio positioning.

Policy shift: less monetary, more fiscal

The focus we have seen so far on monetary policy may change in favour of a greater balance of both monetary and fiscal policy.

Monetary Outlook
  • The Fed – A More Hawkish Stance: Going into the U.S. Presidential election, markets were pricing a very high likelihood of the Federal Reserve hiking the policy rate at its December meeting. Developments since then – especially the prospects for fiscal expansion that would reflate a fully employed U.S. economy – have only strengthened the case. We think the Fed will go ahead with the move in December, followed by one to two additional hikes in 2017.
  • The ECB – Tapering or not?: In Europe, the Central Bank’s enormous stimulus has strengthened Eurozone financial markets’ resiliency, but it has also made them dependent on ongoing stimulus to maintain stability. ECB’s decision on December 8th to prolong QE but at a lower level of €60bn a month sparked fears of tapering despite Draghi’s attempt to to downplay the importance of the move. Weaning markets off easy monetary policy will be a delicate exercise for the ECB and is a topic we think will gain prominence next year – and one that reinforces our long-term caution about investing in the Eurozone.
  • The BOJ – At A Crossroads: After 3.5 years of unprecedented unconventional monetary policy, the Bank of Japan appears to have hit its limit (or is at least approaching it). In September 2016, the BOJ made a policy “regime shift” from base-money targeting to yield-curve targeting. The BOJ from now on will no longer target a base-money increase but will target two specific interest rates: the overnight rate on part of excess reserves and the yield on the 10-year JGB. At PIMCO, we believe that the BOJ’s decision is evidence of its policy exhaustion. Going forward the BOJ will likely remain super-accommodative but will no longer be able to take the lead: it is sneaking into the back seat.
Fiscal Outlook
  • Developed Markets: In developed markets, fiscal policy could become a bigger source of positive surprises – mostly in the form of more stimulus – particularly in the aftermath of the U.S. election.
  • Japan: Japan has already announced a fiscal stimulus package amounting to around 1.5% of GDP spread out over the current and the next fiscal year.
  • UK: In the UK, following Brexit, the government has also indicated that policy will be eased, but details remain to be seen.
  • Europe: In the euro area, our base case includes a moderate fiscal stimulus for next year, but given that several large countries (Germany, France, Netherlands) will hold general elections next year, policy may well turn more expansionary than currently announced.
  • U.S.: Finally, in the U.S., we believe that the chance of a fiscal deal is relatively high following Trump’s election, though it would probably only be implemented in the 2018 fiscal year, which starts on 1 October 2017. However, expectations for more stimulus could lift confidence and thus encourage corporate and consumer spending well before implementation.

In general, more fiscal action can be a big deal for financial markets as it can shake up the newfound consensus that we are in secular stagnation, that central banks are the only game in town and that therefore rates will remain low forever. For this reason, we see a higher and more balanced inflation forecast and more rapid normalization of policy. Indeed, we expect inflation to pick up, as the labor market is tightening. However this inflation pick-up should be gradual, given the further potential strengthening of the U.S. dollar.

Emerging markets may be at a pivot point following the U.S. elections

Global conditions have generally trended toward more supportive of emerging markets in 2016 , including a more dovish Federal Reserve, lower-for-longer global central bank policies and an orderly rebalancing in China. However, Trump’s election, which raises the potential for fiscal stimulus in the U.S, a more hawkish Fed and protectionist trade policies, could create a more challenging landscape for EM. We believe differentiation within the EM asset class should persist, and that the winners and losers may vary dramatically depending on which of the potential combinations of U.S. monetary, trade and fiscal policy play out.

The good news is that EM assets face these complicated scenarios from a relatively attractive starting point. First, EM valuations remain attractive on a relative basis. And second, while investment flows have returned to EM and increased since February, the inflow has been modest compared to past cycles. As a result, with improving external balances and weak domestic demand in EM countries, the traditional threat to EM ‒ a sudden stop in capital flows resulting from a more hawkish Fed – appears reasonably contained.

Politics, main non-economic wild card for 2017

The outcomes of the Brexit vote and of the U.S elections have demonstrated that polls and political betting can get outcomes spectacularly wrong when the political landscape is shifting. So too could surprising outcomes in the upcoming elections in Germany and France next year. In the run-up to the 19th National Party Congress in China in the fourth quarter of 2017, uncertainty about the country’s future political, economic and military course is also likely to be elevated. Given the series of political risk events set to take place in 2017, there is plenty of room for temporary bouts of market volatility or even more permanent economic, policy and political regime shifts.

Getting the Most from Your Credit

Protecting Your Portfolio From Rising Rates

Guarding Against Potential Inflation Surprises

Timing Your Entry Into Emerging Markets

Alternative to Active Stock Picking

Your Anchor Flagship Funds

More from PIMCO

Reset All


For professional use only

RISK Investing is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Commodities contain heightened risk, including market, political, regulatory and natural conditions, and may not be suitable for all investors. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Derivatives may involve certain costs and risks, such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Sovereign securities are generally backed by the issuing government. Obligations of U.S. government agencies and authorities are supported by varying degrees, but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value. High yield, lower-rated securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private guarantor, there is no assurance that the guarantor will meet its obligations. Income from municipal bonds may be subject to state and local taxes and at times the alternative minimum tax. Swaps are a type of derivative; swaps are increasingly subject to central clearing and exchange-trading. Swaps that are not centrally cleared and exchange-traded may be less liquid than exchange-traded instruments. Inflation-linked bonds (ILBs) issued by a government are fixed income securities whose principal value is periodically adjusted according to the rate of inflation; ILBs decline in value when real interest rates rise. Treasury Inflation-Protected Securities (TIPS) are ILBs issued by the U.S. government. Certain U.S. government securities are backed by the full faith of the government. Obligations of U.S. government agencies and authorities are supported by varying degrees but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

This information is provided for information purposes only and is neither an offer to sell nor a solicitation of an offer to buy interest/share in the Global Investors Series (“GIS”) Funds. An offer is made only by the current Offering Documents, available upon request to qualified investors outside of the United States. Only qualified investors may invest in the privately offered investment vehicles. PIMCO GIS Funds are not offered for sale in the United States of America, its territories or possessions nor to any U.S. persons (as defined in the Offering documents), including residents of the United States of America and companies established under the laws of the United States of America. The information contained herein does not take into account investment objectives, financial situation or needs of any particular investor. It is for your use only and is not intended for public distribution.


PIMCO Funds: Global Investors Series plc is an umbrella type open-ended investment company with variable capital and is incorporated with limited liability under the laws of Ireland with registered number 276928. The information is not for use within any country or with respect to any person(s) where such use could constitute a violation of the applicable law. The information contained in this communication is intended to supplement information contained in the prospectus for this Fund and must be read in conjunction therewith. Investors should consider the investment objectives, risks, charges and expenses of these Funds carefully before investing. This and other information is contained in the Fund's prospectus. Please read the prospectus carefully before you invest or send money. Past performance is not a guarantee or a reliable indicator of future results and no guarantee is being made that similar returns will be achieved in the future. Returns are net of fees and other expenses and include reinvestment of dividends. The performance data represents past performance and investment return and principal value will fluctuate so that the PIMCO GIS Funds shares, when redeemed, may be worth more or less than the original cost. Potential differences in performance figures are due to rounding. The Fund may invest in non-U.S. or non-Eurozone securities which involves potentially higher risks including non-U.S. or non-Euro currency fluctuations and political or economic uncertainty. For informational purposes only. Please note that not all Funds are registered for sale in every jurisdiction. Please contact PIMCO Europe Ltd for more information. For additional information and/or a copy of the Fund's prospectus, please contact the Administrator: State Street Fund Services (Ireland) Limited et State Street Custodial Services (Ireland) Limited (collectivement, « State Street »), Téléphone +353 1 7768000, Fax+353 1 7768491. © 2017.

Unless otherwise stated in the prospectus or in the relevant key investor information document, the Fund referenced in this material is not managed against a particular benchmark or index, and any reference to a particular benchmark or index in this material is made solely for risk or performance comparison purposes.

This material may contain additional information, not explicit in the prospectus, on how the Fund or strategy is currently managed. Such information is current as at the date of the presentation and may be subject to change without notice.

The services and products described in this communication are only available to professional clients as defined in the Financial Conduct Authority's Handbook. This communication is not a public offer and individual investors should not rely on this document. Opinion and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. PIMCO Europe Ltd (Company No. 2604517) and PIMCO Europe Ltd - Italy (Company No. 07533910969) are authorised and regulated by the Financial Conduct Authority (25 The North Colonnade, Canary Wharf, London E14 5HS) in the UK. The Italy branch is additionally regulated by the CONSOB in accordance with Article 27 of the Italian Consolidated Financial Act. PIMCO Europe Ltd services and products are available only to professional clients as defined in the Financial Conduct Authority’s Handbook and are not available to individual investors, who should not rely on this communication. | PIMCO Deutschland GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany) is authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie-Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 32 of the German Banking Act (KWG). The services and products provided by PIMCO Deutschland GmbH are available only to professional clients as defined in Section 31a para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-, Brandschenkestrasse 41, 8002 Zurich, Switzerland, Tel: + 41 44 512 49 10. The services and products provided by PIMCO (Schweiz) GmbH are not available to individual investors, who should not rely on this communication but contact their financial adviser.

PIMCO Highlights

PIMCO is one of the world’s premier fixed income investment managers.

More than 2,400

Employees around the world


Global offices throughout the Americas, Europe and Asia


Global investment professionals


Portfolio Managers with an average of 16 years of experience


Investment professionals who have been at PIMCO for 10 years or more


Global Credit Analysts


Sector Specialty Desks


Analytics/Asset Experts


Investors worldwide

$1.72 trillion

Assets under management

As of 30 September 2018