Lending in China is also having less of an impact, with each $1 of new credit generating about 20 cents on average of GDP, versus 60 cents before the financial crisis, according to the report.
“China’s economy needs to shift to greater reliance on household demand,” Toloui said. “Latent demand for not only consumer goods but also services such as health care is likely enormous. However turning that potential into reality requires changes in economic policy that are wide-ranging and difficult.”
In Australia, a “new normal” will arrive, characterized by slower growth as the intensity of Chinese policy stimulus subsides and expansion outside of the South Pacific nation’s mining sector remains subdued.
“This economic backdrop implies a ‘new neutral’ level for policy rates, which we believe should be lowered from 5.5 percent to about 3 percent, which takes into account higher end- borrowing rates, an elevated Australian dollar and lower potential growth rates,” Robert Mead, Pimco’s head of portfolio management in Australia said.
As such, Australian government bonds should be “a relatively attractive asset for high incomes and capital gain potential,” according to Pimco.