He said Chief Economic Adviser to the “Allianz” group, Mohamed El-ErianRecession is likely to replace inflation as the driver of the global economy in 2023, meaning investors face more uncertainty about what could happen.
Markets are preparing for an imminent economic downturn after a series of warnings from “Wall Street” analysts, while the International Monetary Fund said it expects a recession in a third of the world this year.
“In this new year, recession, both real and frightening, has joined and is likely to replace inflation in the leadership seat of the global economy,” El-Erian wrote in an opinion column for the Financial Times.
Allianz’s chief economic advisor added that this would lead to unpredictability for investors. This would usually lead to more turmoil in the market – something that strategists at BlackRock also expected, as they warned that central bankers were unlikely to bail out the markets as they did in the past, according to what was reported by “Insider”, and viewed by “Al-Arabiya”. .net”.
“It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes – something that more and more bond investors seem to realize more than their equity counterparts,” El-Erian said.
Tracking inflation was front and center on investors’ minds in 2022, as central banks tightened monetary policy to slow the rate of price rise. In the United States, the Federal Reserve acted aggressively against inflation, which reached its highest level in 40 years, by raising interest rates at the fastest pace in its history, driving all three US stock indices to their worst year since 2008.
But now, analysts and investors are becoming increasingly convinced that tightening central banks will push the US economy into recession, and Bank of America, among other major Wall Street banks, has warned that deflation could send stocks down more than 20%.
El-Erian, who earlier criticized the Fed for being slow to act, said the rate hike was too late to prevent inflation pressures from spreading to wages and the services sector.
“As such, inflation is likely to remain stubborn at around 4%, be less sensitive to interest rate policies and expose the economy to greater risk for accidents caused by additional policy errors that undermine growth,” he added.
The economist cautioned against complacency about the forces behind the next economic downturn.
“The uncertainties facing economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be short and shallow,” El-Erian said.
“They should be open, if only to avoid repeating the mistake of prematurely eliminating inflation as fleeting,” he added.
