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Mohamed El-Erian, chief economic adviser at Allianz

Portfolio > Economy & Markets

El-Erian: 'Short and Shallow' Recession View Could Be a Trap

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Mohamed El-Erian, Allianz chief economic advisor, warned this week that strategists may be off in predicting that a recession next year would be “short and shallow.”

The economist doesn’t necessarily consider a recession to be inevitable but suggested market watchers should be open to the potential for a range of outcomes beyond the short-and-shallow consensus outlook.

Analysts often try to make troubling news less so, which happened last year when forecasters deemed inflation to be transitory, El-Erian said in an op-ed Monday in the Financial Times. Now,  he continued, strategists say the economy faces a recession but predict it will be shallow and brief.

El-Erian urged caution about this oft-cited view.

“Companies, governments, households and equity investors should plan with an eye to a range of possible outcomes, with no single one dominating as a baseline. Such fluidity calls for safeguarding as much as possible against policy errors, corporate missteps and market accidents,” El-Erian wrote.

He expressed worry that the call for investors to look through a potential recession “could constitute a repeat of the analytical and behavioral traps that featured in last year’s ill-fated inflation call and whose consequences we are yet to put behind us.”

El-Erian sees the recession risk as “uncomfortably high” but doesn’t consider one to be certain, and he said he wasn’t predicting how serious one might be. “Rather, I am writing to warn about the traps that undermine the latest consensus forecast,” he said.


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