El-Erian: Time to Choose a ‘Better Place’ or Possible Recession

The world has synchronized economic growth, says Allianz Chief Economic Advisor Mohamed El-Erian. “What has occurred is that there is more focus on pro-growth policies, and the U.S. is leading that,” he told an afternoon crowd Monday at the Inside ETFs conference in Hollywood, Florida.

“This is not the old type of growth from 15 or so years ago, which was finance driven, leveraged and [facilitated] by the central banks,” El-Erian explained. “This is much more general. Real things are happening.”

But what’s next? “If we stay here, we are not dealing with the underlying tensions,” the economist said.

At the T-junction, “We can turn to a better place with a [new] paradigm, the validation of asset prices and [where] there’s no need to talk about bubbles. Or, alternatively, we can take a wrong turn and end up with a much worse paradigm in which we have to worry about a recession,” he explained.

President Donald Trump’s policies are pro-growth, El-Erian says. But there’s still a need for greater focus on structural reforms, more done on infrastructure, education and labor reforms, and a more balanced fiscal and monetary stance, he adds.

In Europe, “There’s got to be change,” and that entails better fiscal and political integration, according to El-Erian.

Risks Ahead

“Geopolitics matter,” the economist told the crowd late Tuesday. “Markets cannot price this in gradually … and a shock means a market shift.”

He pointed to tensions in the Korean Peninsula, the Middle East and South China Sea as possible flash points.

“Other risks concern the economy. It comes down to the normalization of unconventional policies and if the Federal Reserve can continue to deliver normalization,” the economist said.