The low-growth global economic environment is beginning to take its toll on the financial market, Allianz Chief Economic Advisor Mohamed El-Erian said in a Friday morning interview with FOX Business Network’s Maria Bartiromo.
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“For those sectors that have been badly hit by price declines like energy, it’s been particularly awful,” El-Erian said. “It’s the continuation of the story, which is that the global economy, the U.S. economy, aren’t able to get to escape velocity. We’re continuing this low-level growth equilibrium.”
El-Erian said while both the U.S. economy and financial markets have been able to find more solid footing since the worst start to a new year ever in January, the big headwinds come from pressures overseas. He pointed specifically to worries over growth in China, and why investors are paying more attention to developments there now more than ever.
“What’s happening is the longer you persist in low growth, the bigger the pressure on the system is as a whole. So it’s very hard to be a good house in a difficult neighborhood because even a good house starts to suffer,” he said.
Data on the health of the American economy have been positive relative to other nations. The most recent gross domestic product data, though, showed a slowdown in the first quarter when compared to the final three months of 2015.
The Commerce Department reported on Thursday that the U.S. economy grew at an annualized pace of 0.5% in the January through March 2016 period, down from 1.4% in the fourth quarter, and below consensus estimates for a 0.7% pace.
However, the labor market has been a particular bright spot for the U.S. as it continues to gain traction, adding more jobs each month at a steady pace, and as wage growth begins to pick up.
“The U.S. is still the better economy. It’s the 2% economy whereas Europe is 1% to 1.5%, and Japan is at best a 1% economy,” El-Erian said.
For investors looking for places to invest, he said in terms of valuation, the U.S. has outperformed much of the world, so it looks relatively expensive. He advises waiting to get in because he suspects there will be lower-priced entry points later this year.
“Just remember we are in this rage-bound world and there’s no need to rush,” he said.