Mohamed El-Erian raised the prospect of global economic disaster in the form of slowing growth, stubbornly high inflation and rising unemployment.
“Lower US growth and late #Fed forced to hike 75bps for record 3rd straight are consistent with global stagflationary tendencies,” he said. he tweeted On Saturday. “I wouldn’t be surprised to see more growth revisions.”
Allianz’s chief economic adviser cited Goldman Sachs last week cutting its 2023 US GDP growth forecast from 1.5% to 1.1%. The investment bank predicted that the Federal Reserve will roughly double its benchmark interest rate to 4% to 4.25% by the end of this year.
“Stagflation” describes the toxic combination of stagnant economic growth, increased inflation and rising unemployment. In El-Erian’s view, the Fed’s aggressive rate hikes threaten to stifle growth and lead to higher unemployment, while failing to moderate rising prices.
The former CEO and co-chief investor of PIMCO on Friday highlighted the risk of stagflation tweetafter the Financial Times reported that business insolvencies in England and Wales jumped 43% year-on-year in August.
“Unfortunately, such worrying news is likely to increase in the coming months as some companies struggle to navigate the mix of high costs and falling demand – the double whammy of #stagflation,” he said.
In early September, El-Erian warned that global growth had become more fragile due to the European energy crisis, China’s continued blockade and high US inflation and falling demand. As a result, central banks are at greater risk of inadvertently plunging their economies into recession, he argued.
“Needless to say, this is not a good environment for central banks to catch up,” he said. “The risk of another policy mistake, already uncomfortably high, is increasing.”
Other market commentators have issued gloomy outlooks in recent days. Nouriel Roubini, an economist nicknamed “Dr. Doom” for his dire predictions, he said the Fed would need to roughly double interest rates to 5% to beat inflation – reducing growth, asset prices and the labor market.
“I fear a stagflationary debt crisis because you have the worst of the 1970s in terms of supply shocks, and you have the worst of the global financial crisis because of too much debt, and that combination is dangerous,” Roubini said.
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