- Mohamed El-Arian has warned that the global economy is heading for a deep recession.
- Economists expect “more uncertainty in the future as shocks become more frequent and violent”.
- He said the recession would be “short and superficial”.
Mohamed El-Arian has warned that markets must prepare for a severe downturn that could change the global economy forever.
Economists said on Tuesday that a combination of supply pressures, central bank tightening and market “fragility” would likely weigh on growth.
“Three emerging trends in particular indicate such a change and are likely to play a major role in shaping economic outcomes in the years to come: the shift from insufficient demand to insufficient supply, a major multi-year drag on growth.” such as, the end of the end, boundless central bank liquidity and the increasing fragility of financial markets,” El-Arian wrote in a State Department op-ed.
“These changes help explain many of the unusual economic developments of recent years, and are likely to add further uncertainty going forward as shocks become more frequent and violent,” he added. “These changes will affect individuals, companies and governments – economically, socially and politically.”
El-Arian’s warning comes as institutions including the International Monetary Fund and the Institute of International Finance are forecasting an economic downturn next year.
Russia’s invasion of Ukraine in February tightened global supply chains, with prices of commodities ranging from crude oil to wheat plummeting.
Meanwhile, central banks like the US Federal Reserve have started aggressively raising interest rates, which could dampen inflation but will also curb economic growth.
The rate hike has also exposed weaknesses in certain markets, with the S&P 500 falling 15.5% this year and last year’s crypto success story after major exchange FTX went through a solvency crisis and eventually filed for bankruptcy. It’s gone sour.
El-Arian said analysts need to move away from the mindset that the recession will be a short, sharp downturn — a mindset that he says has led the Fed to label inflation as merely “fleeting.” , Even prices were reduced last year.
“From the US Federal Reserve’s initial miscalculation that inflation would be ‘fleeting’, to the current consensus that a possible US recession would be ‘short and superficial’, there has been a strong tendency to view economic challenges as both temporary and quickly reversible.” been,” he said.
But “these changes will affect individuals, companies and governments — economically, socially and politically,” El-Arian said. “Unless analysts wake up to the possibility that these trends will continue into the next business cycle, the economic hardship they create is likely to far outweigh the opportunity they create.”
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