El-Erian: "Strong US Economy Influences the World... This Year's Risk Is Policy Mistakes"

Mohamed El-Erian, Master of Queens' College, Cambridge University, who led PIMCO, the world's largest bond management firm, stated, "The current global economy is driven by a single engine, the United States," and identified policy mistakes that could fuel stagflation concerns and geopolitical instability as risks to watch in 2025.

Mohamed El-Erian, Master of Queens' College, University of Cambridge. X (formerly Twitter) account

In an interview with Nihon Keizai Shimbun (Nikkei) released on the 6th, El-Erian said, "Last year's phenomenon known as 'American economic exceptionalism' continued to serve as an effective shield against global macroeconomic and geopolitical uncertainties." Former CEO of PIMCO, he also serves as Chief Economic Advisor to Allianz Group and is recognized as a leading economic scholar in both academia and finance.

El-Erian first evaluated the year 2024 by stating, "Geopolitical and political events once considered impossible have become reality." He mentioned, "In the Middle East, tragic conflicts have intensified, resulting in the loss of many innocent lives," and added, "France and Germany have lost political leadership, and Europe's economic recession has deepened." Regarding China, he diagnosed that "it is caught in policy confusion amid conflicts between large-scale stimulus measures and structural growth and development."

Despite these circumstances, he attributed the robust returns in various markets to American economic exceptionalism. El-Erian noted that the global economy is effectively driven by the single economy of the United States and predicted, "In 2025, the U.S. stock market will continue to outperform most other advanced economies' stock markets."

Since the 19th century, 'U.S. exceptionalism' has been a term mainly used to emphasize the uniqueness and differentiation of the United States as a global hegemonic power in politics, diplomacy, and other fields. Last year, the phenomenon of the U.S. economy's 'lone boom' became particularly notable from an economic perspective. On this day, Bloomberg News also reported, citing Market LivePulse survey results, that U.S. exceptionalism would drive the New York Stock Exchange and dollar strength this year.

However, the key question is how long this American economic strength will last amid domestic and international uncertainties this year. El-Erian said, "(Exceptionally strong U.S. economic performance) can buy time for other major economies to implement necessary reforms and prepare future growth engines by demonstrating political leadership," adding, "This is especially important as many central banks face difficult policy decisions."

As the primary risk to watch, he pointed to policy mistakes that could fuel stagflation concerns. His diagnosis is that policy errors could lead to a situation where economic growth slows while inflation rebounds. Previously, in another article, he argued that incorrect monetary policy by the Federal Reserve (Fed) could weaken American exceptionalism. Following that, he identified geopolitical instability as the second risk that could impact the economy and markets.

Regarding questions about the Fed's actions, which hold the key to the U.S. economy this year, El-Erian responded, "The number of rate cuts will largely depend on whether the Fed prioritizes quickly achieving the 2% inflation target or decides it is better to tolerate somewhat higher inflation considering other economic impacts." He predicted, "If the former is chosen, a single rate cut will be the limit."

Furthermore, he expected that the inauguration of Donald Trump's next U.S. administration on the 20th would have a positive impact on deregulation and liberalization. However, he also acknowledged concerns about the Trump administration by citing the possibility of policy mistakes related to financial, fiscal, trade, and labor policies as one of the risks that could undermine the U.S. economy's no-landing (soft landing) expectations. Additionally, he mentioned that although Germany and France are currently shaken by political leadership issues, they could return to a growth trajectory. He also anticipated that the Bank of Japan (BOJ) would successfully continue its rate hike path.

This content was produced with the assistance of AI translation services.