Mohamed Arielian is Chief Economic Advisor of Allianz SE.
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President Donald Trump’s massive import duties put the US economy at risk of a recession, Mohamed El Elian, Chief Economic Adviser of the Allianz, warned on Friday.
He added that Trump’s so-called mutual tariff flock could have a major impact on the global economy.
“You’ve re-risked your growth outlook so you can see that there’s up to 50% chance of a recession in the US and that inflation expectations are up to 3.5%,” he told CNBC’s Sylvia Amaro on a bystander at the Ambrossetti Forum in Cernobubio, Italy.
“The structure of the economy is so strong that (US recession) is inevitable, but the risks have become uncomfortable.”
Trump tariffs are unfolding just as signs of weakness begin to show in the American economy. Last month, fund managers, strategists and analysts told CNBC that there was a slowdown on the horizon as the recession risks rising to six months of heights.
El Elian said he believes the US economy will expand between 1% and 1.5% this year.
“When you get closer to 1%, you get closer to what’s known as ‘stall speed’,” he said. “The economy is not moving fast enough to allow for the kind of resource real needed. So, we hope that approaching one will significantly increase the risk of a recession.”
Aside from warnings about the state of the US economy when tariffs come in, El Elian also said the markets underestimate the impact of Trump’s aggressive trade policy inflation.
He further warned that the market is underestimating the inflation impact of the tariff system.
“The initial response was concerns about growth. There were no other two reactions yet. What will happen to growth in other countries? It puts a question mark on whether the dollar’s weakness will continue. He asked.
Last week, latest US data showed that core inflation rates have risen more than expected, with the Core Personal Consumption Expenditures Index (Fed’s main inflation gauge) gaining the largest monthly increase in over a year.
“If you’re lucky, you’ll get one rate reduction instead of four. If you don’t have anything, you won’t be surprised,” El Elian added.
“If it’s a regular Fed, and I say this qualification has a lot of emphasis because it wasn’t a regular Fed.
According to CME Group’s FedWatch Tracker, the market is currently priced four rate reductions from the Fed. At its latest meeting in March, the central bank stabilized key rates in the range of 4.25% to 4.5%, while officials cut US growth forecasts, but said they saw two interest rate cuts until 2025.
“When the US slows down, the rest of the world will be slower.”
Shortly after Trump’s mutual tariff announcement, European currencies recorded significant profits against the US dollar, while the euro and British pound touched on six-month highs against the greenback.
Nevertheless, El Elian said he doesn’t think he’ll see the weakness of the dollar over the long term.
“We’ve seen the Dollar Index depreciate as the market responds to lower US growth rates, lower interest rates, lower capital flows to the US, and I think it’s round one,” he said. “People don’t think we’ll continue to see the weakness of the dollar, as when the US slows down, the rest of the world will slower than the US.”
Ultimately, El Elian said economists were split over what the enormous import obligations mean for the US and the global economy.
“I think there’s a complete consensus on pain (caused by tariffs) in the short term, but in the long term there’s a disagreement in the interests,” he told CNBC. “Can you claim this is pain now to make profits later? Yes.
– CNBC’s Jeff Cox and Steve Reesman contributed to this report.
