Johannesburg - Pacific Investment Management Company (Pimco), the world's largest mutual fund, has warned South African investors to guard against complacency despite signs that the global economy had recovered.
"The inventory re-stocking process can be a very powerful turbo-charger for the economy but you need to remember that it is a once-off," said Paul McCulley, a member of Pimco's investment committee, on a visit to South Africa.
Corporate firms have been restocking their inventories after allowing them to be depleted throughout the financial crisis and ensuing economic recession.
This phase has passed, therefore attention would be focused on "the real economy" specifically in places like the US and China, said McCulley.
Weak labour markets in developed economies, specifically the US, were likely to hold back any meaningful recovery in these markets, he added.
"Over the next three to four years, the US is going to have structurally high unemployment," said McCulley. "The concerning thing for a lot of people is the permanency of it."
In previous recessions, jobs in sectors such as vehicle manufacturing had bounced back rapidly. It was uncertain whether this would be repeated in the current period, Pimco said.
Emerging markets such as Brazil, Russia, India and China were growing rapidly, but the US remains influential in the world economy. As a result, its troubles are a major denominator for global growth.
Crucially, US consumption had fallen as people saved more amid falling investment and property markets and rising unemployment.
China must liberate consumers
Commenting on China, McCulley said the world's fastest-growing economy had to reinvent itself so that fewer profits were retained in state-owned enterprises, and higher levels of wages were passed down to employees.
This would have a positive impact on the Chinese economy as the personal balance sheets of consumers strengthened. "Then the Chinese consumer will learn how to spend internally," he said.
China's ability to make a number of products extremely cheaply has knocked manufacturing activities in a number of regions, including the US and South Africa. Much of this has been attributed to high productivity and very low wages.
This in turn has had a knock-on effect to employment in many of the industries.
Asked by Fin24.com whether a change in labour policies and wages in China would make countries like the US more competitive, McCulley was unconvinced.
In high-end manufacturing, which required "value add" by skilled professionals, there would be opportunities, but low- and middle-end manufacturing in the region would remain uncompetitive, he said.
For this reason, emerging markets which continued to show positive growth rates were more likely to outperform developed markets over the next three to five years.
- Fin24.com