Bad market news could lay the groundwork for an economic slowdown that will require political will to dodge it, Mohamed El-Erian, Allianz SE’s chief economic adviser, warned.
«We can end up in a situation where people read these alarmist headlines, worry and stop spending,» said El-Erian, who is also a columnist for Bloomberg’s opinion, in a Bloomberg Radio interview. «As they stop spending, companies stop investing. And then we have a big slowdown.»
U.S. stock markets fell around 3% on Wednesday due to reversal of the debt yield curve, historically a reliable indicator of an imminent recession.
El-Erian also stated:
Markets «need» better fundamentals in Europe, which may be closer to a recession, as well as in China and the United States.
Pro-growth government policies, not just lower interest rates, are needed to restore market confidence. «It’s more of a political problem than measures,» he said.
The U.S.-China trade war is based on real complaints about a balance and is likely to continue. «I don’t see China making the necessary concessions,» he said. «I also don’t see the United States going to relax its demands. So the best option I see is a ceasefire for a few weeks, a few months.»