PIMCO's El-Erian Envisions a European Recession

According to PIMCO's Mohamed El-Erian, European growth will stall over the coming year as volatility will persist.

(September 26, 2011) — Mohamed El-Erian of Pacific Investment Management Co. (PIMCO), which runs the world’s biggest bond fund, is forecasting a European recession in 2012.

El-Erian, chief executive officer of PIMCO — with $1.34 trillion in assets under management — has asserted that there will be little-to-no economic growth in industrial nations over the next year as Europe’s economy contracts by up to 2%. Meanwhile, he said that the US will stagnate yet volatility will continue as a result of policymakers in Europe and the US having failed to take corrective action.

“For the next 12 months, the global economy will slow materially with advanced economies struggling to grow much above zero. Emerging economies will maintain faster growth, albeit not as high as the last 12 months,” Bloomberg cited El-Erian as saying during a September 24 interview in Washington. His comments come as world leaders gathered in Washington over the weekend for annual meetings of the International Monetary Fund (IMF) and the World Bank.

When asked for his thoughts on the crisis and about the seriousness of the situation by TheStreet, El-Erian replied: “This is a serious situation because the crisis in Europe is spreading. It’s still spreading today. So, not only have the Europeans not been able to contain it to Greece, they haven’t even been able to contain it to the periphery.”

Last month, El-Erian voiced similarly negative views on the economic outlook of the US and the debt ceiling deal in Washington, saying that the deal won’t fix the root of the problem draining the nation’s economy. “The key issue…is that we simply cannot generate enough growth to get us over all these issues,” El-Erian said in an interview with CNBC. “Therefore, we have these structural headwinds that continue to slow us down. Until we see structural solutions we’re going to be stuck on the bumpy road to a new normal.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742