Top Economist Mohamed El-Erian Warns Of “Violent” Shocks That Might Change Global Economics

One Analyst, Mohamed El-Erian, has cautioned that investors should brace themselves for a severe recession that has the potential to irrevocably alter the global economics.

The economist stated on Tuesday that there are a number of factors that are likely to weigh on growth, including pressures on supply, tightening by central banks, and “fragility” in the market.

El-Erian wrote in an opinion piece for Foreign Affairs that “three new trends in particular hint at such a transformation and are likely to play an important role in shaping global economics over the next few years: the shift from insufficient demand to insufficient supply as a major multi-year drag on growth; the end of boundless liquidity from central banks; and the increasing fragility of financial markets.”

“These shifts help explain many of the unusual economic developments of the last few years, and they are likely to drive even more uncertainty in the future as shocks grow more frequent and more violent,” he added. “These shifts help explain many of the unusual economic developments of the last few years.” Individuals, businesses, and governments will all be impacted by these shifts, which will have economic, social, and political repercussions. This warning comes at a time when numerous organizations, such as the International Monetary Fund and the Institute of International Finance, are predicting a slowdown in economic activity in the coming year.

As a result of Russia’s invasion of Ukraine in February, global supply chains have become more constrained, which has caused prices of commodities ranging from crude oil to wheat to skyrocket.

In the meantime, central banks such as the Federal Reserve in the United States have begun to aggressively raise interest rates. This could be starting to bring inflation under control, but it will also have a negative impact on the growth of global economics.

Rate hikes have also exposed vulnerabilities in particular markets, which has resulted in the S&P 500 falling 15.5% this year and the crypto success story from the previous year turning sour after a major exchange FTX suffered a solvency crisis and eventually filed for bankruptcy. Both of these events were caused by rate hikes. El-Erian stated that analysts need to move away from the idea that the downturn will be a short, sharp recession. It was this way of thinking, he warned, that had led the Fed’s classification of inflation as only “transitory,” even as prices creeped up last year.

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“From the initial misjudgment that inflation would be ‘transitory’ to the current consensus that a probable US recession will be’short and shallow,’ there has been a strong tendency to see economic challenges as both temporary and quickly reversible,” he said. “From the initial misjudgment that inflation would be ‘transitory’ to the current consensus that a probable US recession will be’short and shallow,’” he said.

But, as El-Erian pointed out, “these shifts will affect individuals, corporations, and governments — economically, socially, and politically.” “Until analysts wake up to the possibility that these patterns will outlast the subsequent business cycle, the economic hardships that they inflict are likely to greatly outweigh the benefits that they generate,”

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