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September 11, 2015 at 11:55 AM
Mohamed El-Erian commented Friday on some of the more troubling spots in the global and U.S. economy.
El-Erian, Allianz’s chief global strategist and PIMCO’s former CEO, discussed Brazil’s recent downgrade, the oil market, the unstable Chinese economy and the tech sector’s disruption of traditional industries in an interview with Bloomberg’s Betty Liu and Pimm Fox on Bloomberg Markets.
Brazil
Earlier this week, Standard & Poor’s lowered its rating on Brazil’s debt to junk status.
“It’s so sad,” El-Erian told Bloomberg Markets. “Brazil is stuck in this stagflationary environment, in which they cannot regain control of either of the growth dynamics or the inflation dynamics. The result of that is that budgetary policies become much more difficult, which then accentuates politics, which then feeds back. So they are stuck in this vicious cycle and the S&P was right to downgrade them. It’s sad to see them lose their investment grade, but that’s their reality right now.”
And El-Erian doesn’t see Brazil’s situation changing anytime soon.
“They’ve got to regain control of the growth and inflation dynamics and that means much more political boldness in terms of taking measures,” he said. “And I don’t see that happening anytime soon, unfortunately. So I remain quite worried on Brazil.”
Oil
El-Erian, who on multiple occasions has called the oil market “unhinged,” commented on a new report from Goldman Sachs that suggests oil could fall to as low as $20 a barrel in a worst-case scenario.
“The oil market has been unhinged,” he told Bloomberg Markets. “It’s like the market for emerging market currencies. they’ve been fundamentally unhinged. They’ve had an earthquake. The oil market has had an earthquake on the supply side, on the demand side, and you know what, they’ve changed their swing producer, so the pricing dynamics have completely changed.
While El-Erian said $20 a barrel is “possible,” he’s a little more optimistic.
