Allianz’s Chief Economic Advisor, Mohamed El-Erian, has voiced concerns about the potential risks to the U.S. economy stemming from President Donald Trump’s aggressive import tariffs. Speaking at the Ambrosetti Forum in Cernobbio, Italy, El-Erian warned that these tariffs could escalate the probability of a U.S. recession to 50%. Despite his pessimism, he noted, “I don’t think [a U.S. recession] is inevitable because the structure of the economy is so strong, but the risk has become uncomfortably high.”
El-Erian highlighted the broader global economic implications of Trump’s tariff policies, labeling them as “reciprocal tariffs.” He noted that these measures have already led to a substantial repricing of growth expectations and heightened inflation expectations, which he told CNBC’s Silvia Amaro have risen to 3.5%. This coincides with other economic signals, as financial experts recently forecast a slowdown in the U.S. economy, pushing recession risks to new highs.
According to El-Erian, the U.S. growth forecast has been downgraded significantly. He now expects the economy to expand by just 1% to 1.5% this year, a stark contrast to the IMF’s earlier 2.7% growth projection. “If we get close to 1%, we get close to what’s known as ‘stall speed,'” El-Erian explained. A downturn in economic momentum could complicate necessary resource reallocations, markedly increasing the likelihood of a recession.
Aside from growth concerns, El-Erian criticized market analysts for underestimating the inflationary impact of the tariffs, questioning future growth trajectories and their effects on the dollar’s strength. Recent U.S. data showed an unexpected rise in core inflation, challenging the Fed’s position. He speculated that financial markets might be overly optimistic in anticipating four potential rate cuts from the Federal Reserve this year. “I think if we’re lucky we’ll get one rate cut, not four, and it wouldn’t surprise me if we get none,” he added.
The ripple effects of Trump’s tariffs were immediately visible in the foreign exchange market, where European currencies appreciated against the U.S. dollar, with the euro and British pound reaching six-month peaks. However, El-Erian expressed skepticism about the durability of this dollar depreciation. “If the U.S. slows down, the rest of the world will slow down more,” he observed, suggesting that persistent dollar weakness was unlikely.
Economists remain split on the long-term ramifications of these stringent import duties, balancing immediate economic pain with elusive future gains. “While there’s, I think, complete consensus on the pain [caused by tariffs] in the short term, there’s disagreement on the gain in the long term,” El-Erian concluded. “Can you make a case that this is pain now for gain later? Yes. Can you make it with conviction? No.”
This commentary underscores a critical juncture for the U.S. and global economies, as both navigate the uncertainties introduced by unilateral tariff policies. As policymakers and markets continue to react, close monitoring and analysis will be essential in assessing the ongoing impacts of these trade decisions.
Original Source: https://www.cnbc.com/2025/04/04/liberation-day-mohamed-el-erian-says-trump-tariffs-risk-us-recession.html
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Publish Date: 2025-04-04 14:05:00
