Arab Press

بالشعب و للشعب
Saturday, Feb 22, 2025

Photo of Mohamed El-Erian.

Top economist Mohamed El-Erian says we’re not just headed for another recession, but a ‘profound economic and financial shift’

The former CEO of PIMCO sees three trends that suggest a transformation in the global economy is under way.
Investors and economists have been sounding the recession alarm. But one major economist who has seen warning signs mounting for many months says this potential recession is unlike what we’re used to. 

That economist is Mohamed El-Erian, previously the chief executive officer of the massively influential bond-market player PIMCO. He also chaired former President Barack Obama’s Global Development Council and has written several economic best-sellers. Simply put, he’s one of the best Fed and markets watchers alive, and he hasn’t liked what he’s seen for some time now.

There’s a tendency to see economic challenges as “temporary and quickly reversible,” El-Erian wrote in a commentary for Foreign Affairs, citing the Federal Reserve’s initial thought that high inflation would be transitory or the consensus that a recession could be short. 

“The world isn’t just teetering on the brink of another recession,” he continued. “It is in the midst of a profound economic and financial shift.”

He referenced economic theory that a recession occurs when a business cycle reaches its natural endpoint and before the next cycle really takes flight, but he said this time won’t be one more turn of the “economic wheel,” as he sees the world experiencing major changes that “will outlast the current business cycle.” He highlighted three trends that suggest a transformation in the global economy is under way.


Three major trends transforming the world economy

The first transformational trend, El-Erian says, is the shift from insufficient demand to insufficient supply. The second is the end of boundless liquidity from central banks. And the third is the growing fragility of financial markets. 

These help to explain “many of the unusual economic developments of the last few years,” he wrote, and looking forward he sees even more uncertainty as economic shocks “grow more frequent and more violent.” Analysts aren’t waking up to this yet, he added.

The first shift was driven by the effects of the pandemic, beginning with the entire system coming to a halt and stimulus from the government, or what El-Erian called “enormous handouts,” causing “demand surges well ahead of supply.” 

But as time went on, El-Erian said, it became clear that the issue of supply “stemmed from more than just the pandemic.” It’s tied to Russia’s invasion of Ukraine that resulted in sanctions and geopolitical tensions, along with a widespread labor shortage brought forward by the pandemic. These disruptions in supply chains gave way to “nearshoring,” a more permanent shift of companies moving their production closer to home, rather than a reconstruction of the 2019-era supply chain. This essentially reflects a change in the “nature of globalization.” 

“Making matters worse, these changes in the global economic landscape come at the same time that central banks are fundamentally altering their approach,” El-Erian said. As he has been for months now, El-Erian criticized the Federal Reserve in particular for being too slow to recognize inflation entrenching itself into the economy, and then for its steep rate hikes to make up for lost time. 

As inflation soared, the Fed pivoted to aggressive rate hikes—with the last four increases all being by 75 basis points that lifted the federal funds rate to a range of 3.75% to 4%. But this fundamental change in approach led to the third problem, El-Erian writes. “Markets recognized that the Fed was scrambling to make up for lost time and started worrying that it would keep rates higher for longer than would be good for the economy. The result was financial market volatility.”

Markets have been trained to expect easy money from central banks, he said, and the “perverse effect” of that has been for “a significant chunk of global financial activity” to flood into asset management, private equity and hedge funds, among other less-regulated entities. The gyrations in markets since the easy money era ended this year can be understood as that significant chunk looking for a new home, investment-wise. It’s fragile at this point.

“The fragility of the financial system also complicates the job of central banks,” he said. “Instead of facing their normal dilemma—how to reduce inflation without harming economic growth and employment—the Fed now faces a trilemma: how to reduce inflation, protect growth and jobs, and ensure financial stability.”

El-Erian isn’t alone in citing multiple threats to the future of the world economy. The veteran economist Nouriel Roubini and the financial historian Adam Tooze are two other prominent voices warning of interrelated threats. Roubini has just authored a new book called “MEGATHREATS” about no fewer than 10 giant economic problems facing the world, while Tooze has popularized the term “polycrisis” to describe a group of related and compounding problems. 

Roubini himself told Fortune recently that he and Tooze are describing a similar set of phenomena, although he did not touch on El-Erian’s criticisms. However, like El-Erian, Roubini explained the multiple factors at play, and because they’re so interconnected, it creates a domino-like effect, contributing to a possible recession. 

“If you raise interest rates, you can also have a crash of equity markets, bond markets, credit markets, and asset prices in general that causes further financial and economic damage,” Roubini told Fortune. Still, he explained that raising rates does help fight inflation, even though it risks the possibility of a hard landing, all of which are triggered by “negative shocks” to the supply chain. 

Moving forward, El-Erian concluded, these changes mean economic outcomes will be harder to predict. And it won’t necessarily mean one simple outcome but rather a reflection of a “cascading effect”—in that one bad event could likely lead to another.
Comments

Oh ya 2 year ago
Well it is a good thing América is being lead by a man that has all that private sector work experience at the swimming pool getting kids to rub his hairy legs. Otherwise América could be in trouble.. Sarc off

Newsletter

Related Articles

Arab Press
0:00
0:00
Close
The negotiation teams of Trump and Putin meet directly, establishing the groundwork for a significant advance.
Israeli Minister Urges Hamas to Surrender and Depart from Gaza.
Iran Considers Moving Its Capital Due to Urban Difficulties
Israel and Hamas Finalize Sixth Exchange of Hostages and Prisoners During Continuing Gaza Ceasefire
Leaders of BRICS to Gather in Rio de Janeiro for July Summit
Muhsin Hendricks, a trailblazing openly gay imam, was killed in South Africa.
Trump's special envoy for hostage affairs cautions Hamas against challenging Trump before Saturday's deadline.
Two British citizens apprehended in Iran amid escalating tensions.
Israel Issues Threat of Military Action as Hostage Negotiations with Hamas Continue
Hamas Coordinates Worldwide Solidarity Marches in Reaction to U.S. and Israeli Initiative
Israel Warns of Ending Gaza Ceasefire Due to Hostage Situation
King Abdullah II Dismisses US Proposal to Relocate Palestinians, Commits to Welcoming Gaza Children.
Lebanon Installs New Government with Hezbollah's Impact on Key Ministries
Report: Iran Attempted to Assassinate Trump During Election Campaign
U.S. Authorizes $7.4 Billion Arms Sale to Israel
Iran's Supreme Leader Rejects Nuclear Negotiations with the U.S.
UN Chief Denounces Trump's Gaza Plan, Cautions Against Ethnic Cleansing
Pressure Intensifies for a Free Trade Agreement between the UK and GCC in Light of Economic Difficulties
Israel to Withdraw from UN Human Rights Council Due to Accusations of Anti-Semitism
EU Reaffirms Gaza's Essential Role in Future Palestinian State Following Trump's Proposal
Iranian Currency Reaches All-Time Low Amid US 'Maximum Pressure' Initiative.
UN Reaffirms Ban on Deportation from Occupied Territories Amid US Gaza Proposal
Palestinians Fear Repeat of 'Nakba' Amid Ongoing Crisis in Gaza
UAE Aids in the Exchange of 300 Prisoners Between Russia and Ukraine
Egypt Seeks Global Backing for Two-State Solution Following US Proposal for Gaza Plan
Trump's Suggestion to 'Seize Control' of Gaza Represents a Significant Shift in US Policy
French President is the first EU leader to extend congratulations to the new Syrian President.
Tunisian President Appoints New Finance Minister Amid Economic Crisis
Trump Suggests U.S. 'Takeover' of Gaza, Prompting Global Worries
Trump's Proposal for Gaza Provokes Global Debate
President Trump Suggests Moving Gaza's Palestinian Population
Aga Khan IV, Spiritual Leader and Philanthropist, Dies at 88
Erdogan and Syria's Sharaa Talk About Collaboration to Counter Kurdish Militants
Trump Suggests U.S. Control of Gaza Strip Amid Ongoing Conflict
Trump Resumes 'Maximum Pressure' Strategy to Limit Iran's Oil Exports.
Ex-British Soldier Sentenced for Espionage on Behalf of Iran and Fleeing from Prison
Gazans in Egypt Reject Displacement, Struggle with Return to War-Torn Home
Queen Rania Urges Protection of Children’s Rights at Vatican Summit
Hamas Officials Ready to Begin Negotiations for Phase Two of Gaza Truce
Trump Expresses Caution Over Gaza Ceasefire as Netanyahu Visits Washington
Oman to Host 18th Indian Ocean Conference on Maritime Security and Trade
Emir of Kuwait Meets BlackRock CEO for Talks on Investment Opportunities
Queen Rania of Jordan Calls for Global Action on Children’s Rights at Vatican Summit
Egyptian President El-Sisi Invited for White House Meeting Following Jordanian King’s Visit
Queen Rania Calls for Protection of Children’s Rights at Vatican Summit
Israeli Military Operations Continue on Lebanon Border Amid Ceasefire Tensions
Israeli Hostage's Release Highlights Uncertainty Over Family's Fate
Israeli Military Operations Escalate in Southern Lebanon Amid Hezbollah Tensions
Zayed Award for Human Fraternity Announces 2025 Honorees
Kuwait Anticipates a 12% Increase in Budget Deficit for the 2025-2026 Fiscal Year
×