El-Erian Warns That Slow Growth Could Lead to Recession

Governments around the world need to step in with fiscal policies that promote growth because central banks will eventually have to take their feet off the monetary easing pedals, economist Mohamed El-Erian told CNBC on Thursday.

The world economy cannot operate at “low speed” forever without breaking, Allianz’s chief economic adviser said on “Squawk Box.”

The least likely scenario on how the extraordinary monetary stimulus story ends is the status quo, said El-Erian, former co-CEO of Pimco.

“We could easily see a situation where low growth becomes recession. Artificial stability becomes instability,” he said. “[But] if governments step up … we can transition to a higher growth scenario that validates prices.”

“We are in an artificial period that we’ll come out of at some stage,” he said, advising investors to build up cash.

El-Erian said the longer the Fed keeps interest rates low, the more distortion there will be in economic growth and in financial markets. The Fed is behind the curve and should hike rates, he added.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza