Pimco Raises US Growth Forecast After Tax Deal

Pacific Investment Management Co, manager of the world's largest bond fund, raised its growth forecast for the U.S. economy to between 3 percent and 3.5 percent for 2011 from its earlier estimate of 2 percent to 2.5 percent, Chief Executive Mohamed El-Erian told CNBC late Thursday.

Mohammed el Erian
Source: Pimco
Mohammed el Erian

The more positive outlook was influenced by measures put in place to stimulate the economy such as the compromise to extend Bush-era tax cuts for another two years, but further stimulus measures would be needed to keep the growth going, El-Erian said.

"Maintaining such a growth rate beyond 2011 requires additional measures to enhance competitiveness and achieve medium-term fiscal consolidation," he wrote to CNBC.

Pimco sees the economy growing 3 percent to 3.5 percent in the fourth quarter of 2011 from the same period of this year.

"We revised this week our outlook for U.S. growth in 2011 taking into account Monday's announcement on additional fiscal stimulus measures," El-Erian said in an interview with Reuters.

El-Erian also shares the co-chief investment title with Bill Gross, who runs the $256 billion Pimco Total Return Fund.

"It is far from certain at this point that 2011's higher growth projection will translate into a significant improvement in the growth outlook for the period beyond next year," he added.

Obama on Monday unveiled a compromise deal to extend all Bush-era tax cuts for two years, giving ground to emboldened Republicans who won big in last month's congressional elections.

Many economists also raised their U.S. gross domestic product forecasts after the tax deal struck by Obama, which included a surprise reduction in payroll taxes for 2011.

Even before the tax-cut compromise, investment bank Goldman Sachsraised its 2011 U.S. gross domestic product forecast to 2.7 percent from 2 percent. On Tuesday, Goldman said the tax package could add 0.5 to 1.0 percentage points of growth on top of that.

El-Erian said: "Such a multiyear improvement would likely also require structural measures aimed at improving America's global competitiveness and a credible medium-term fiscal consolidation program."

He warned: "It's important to ask whether the extraordinary fiscal and monetary stimulus measures, by themselves, will also have a meaningful impact on growth beyond 2011."

- Reuters contributed to this report.