Mohamed El-Erian detailed what he saw as the four most pressing issues affecting the global economy in an interview Tuesday with Bloomberg TV. Surprisingly, China was listed fourth, raising natural curiosities about what the other three might be.
The so-called fiscal cliff, whereby automatic tax increases and spending cuts are slated to take effect in the United States in January, took the top spot, according to El-Erian, the CEO of PIMCO. This was followed by the ongoing travails in Europe, geopolitical risk in the Middle East and elsewhere, and then the aforementioned China economic situation.
Two things are happening in China, he said, “one external and one internal.” One is that China is mainly a “selling machine for the rest of the world. As Europe slows and the United States remains sluggish, China is also slowing. Internally, China is going through a middle-income transition, and growth slows down in that phase of a country’s development.
“It’s something everyone should be looking at, because it is a risk to the global economy,” he concluded.
When commenting on Europe, he said it was wise for ECB president Mario Draghi to cancel his much-anticipated trip this week to the annual Jackson Hole symposium.
“Some people believed that during his panel on Saturday in Jackson Hole, he was going to announce some ‘policy leap,’ ” El-Erian said. “Well, Jackson Hole is not the venue to the time for Draghi to announce anything. I think he is going to wait for the ECB governing council meeting, and he’s also going to wait for Sept. 12 when we hear from Germany in terms of the constitutional court.”
On that date, the court will decide whether the new European bailout fund and fiscal pact are compatible with German law.
El-Erian added that he believes Draghi has a busy schedule, which was the reason given for the cancellation, and “taking off three or four days from the busy schedule is not a good idea, nor does it look good for the Europeans.”