El-Erian Says the US Economy Can Grow Even With Drag From China

The US can continue to see growth even as worries over the Chinese economy mount, according to Mohamed El-Erian.

(Bloomberg) — The US can continue to see growth even as worries over the Chinese economy mount, according to Mohamed El-Erian. 

“It is all about global economic growth and how much of the burden can the US continue to shoulder — because China is now a detractor to global growth,” El-Erian, the chief economic adviser at Allianz SE and a Bloomberg Opinion columnist, told Bloomberg TV on Friday. “The US has the privilege of being a large, relatively closed economy, well diversified, entrepreneurial. So yes, we could” continue to see strength.

“That has been the story of this year — is that the US has continued to do well and is accelerating even though the rest of the world has been” sluggish, he said. 

Reports of late have signaled the US economy remains robust. Retail sales rose in July by more than expected, and the prior months’ readings were revised higher. Some analysts argue that such strength may lead economic growth to accelerate in the third quarter. 

Gross domestic product is expected to advance an annualized 1.8% this quarter, easily eclipsing the 0.5% pace projected in July, according to the latest Bloomberg monthly survey of economists. They also see the economy expanding somewhat in the last three months of the year, rather than contracting.

Read more: Economists Lift US Growth Forecasts, See Fed Higher for Longer

On the other hand, recent Chinese data point to weak consumer spending, exports contracting and a worsening property slump. The People’s Bank of China responded with the steepest cut in a key interest rate in three years. 

President Joe Biden this month called China’s economic problems a “ticking time bomb.”

US stocks, however, have been selling off amid concerns over China’s prospects and worries that the Federal Reserve could keep interest rates higher for longer. The S&P 500 Index is on pace for its worst weekly performance since March, while 10-year Treasury yields are testing multi-year highs.

El-Erian says that the market has overdone “the romance with the soft-landing narrative. It went too far, both on the bond side and on the equity side. So I see this as a give-back after a month of excessive romance with the soft landing.”

–With assistance from Reade Pickert, Augusta Saraiva and Sarina Yoo.

More stories like this are available on bloomberg.com

©2023 Bloomberg L.P.