US growth to miss target next year

Singapore: The US economy will disappoint investors by expanding at a rate of 1.75 per cent over the next year, said Ramin Toloui at Pacific Investment Management Co (Pimco), which runs the world's biggest bond fund.

The risks are skewed toward even slower growth, Toloui, an emerging markets portfolio manager, said on a conference call. Growth will fall short of the consensus forecast, which is 2.6 per cent for the year ahead, according to Pimco. Investors should add to their emerging-market holdings, Toloui said.

"We're still seeing a tentativeness in the financial sector to take risk" in the US, said Toloui. "The overall alignment of facts point toward a much more cautious conclusion about the trajectory of the US economy."

Slow expansion

Toloui spoke as Federal Reserve officials debate whether to increase the central bank's Treasury purchases to stimulate the economy. China raised borrowing costs yesterday for the first time since 2007, sparking speculation the decision will slow one of the engines of the global econ-omic expansion.

Emerging markets will outperform developed ones because they have lower levels of debt, greater capacity to expand private demand and bigger infrastructure needs that will require government investment, according to Pimco.

"This doesn't suggest a golden age for emerging markets," Toloui said. "Emerging-market growth will be impaired by difficulties in the industrial world."

China's central bank lifted its benchmark one-year lending rate to 5.56 per cent from 5.31 per cent. The deposit rate was increased to 2.5 per cent from 2.25 per cent.

"Stimulus and credit growth is now being reduced as China tries to take the edge off of exuberance in real estate and other asset markets," Toloui said. "That's being done in a measured way that we think will transition to more stable rates of growth in China."

China contributed about 1.75 percentage points to global gross domestic product growth during the deepest part of the financial crisis and the recovery in the first half of 2009, Pimco estimates.