Mohamed El Erian, Allianz's chief economic advisor, said that the latest US GDP data shows that the economy is still quite strong, but this does not mean that the US economy has emerged from difficulties.
The latest data shows that the estimated real gross domestic product (GDP) of the United States in the third quarter increased by 4.9% year-on-year (YoY), which is more than twice the 2.1% in the second quarter and the highest level since the fourth quarter of 2021 (7.0%). The market originally only expected to increase to 4.3%.
Elian stated that although this is a sign of economic strength, it is not yet the time to shake off recession anxiety.
He said in a program, "We should not see this as a signal that everything is over in 2024. As you know, I have always opposed the idea that we will have an economic recession in 2023, and I am a bit worried about 2024
Worrisome are the rising deficit and increasing bankruptcies in the United States, as well as an economy with inflation rates approaching 4%. But strong retail sales data and the September employment report have led many investors to shift towards a 'no recession' camp.
Elian said that although the GDP data emphasizes the "exceptionalism" of the United States, high interest rates are affecting every corner of the economy, which needs to be noted.
He said, "Firstly, the decrease in savings is a big problem. Secondly, there are indeed problems with the interest rate market. This is a problem for businesses, a problem for the government, a problem for the Federal Reserve, and a problem for households. This is a significant negative factor for economic activity
He explained that for more than a decade after the 2008 financial crisis, borrowing costs remained close to zero, driving economic activity by encouraging loans and maintaining market liquidity, which helped drive up asset prices.
Now, the Federal Reserve's interest rate hike has pushed up the credit costs of the entire economy, and the market has responded to this change. Mortgage interest rates have broken through decades of highs, and the commercial real estate market is trembling. The government will have to pay more interest to repay huge debts.
Another response to the current rate hike by the Federal Reserve is the collapse of the bond market, which Elian described as' anchor free '. Due to the expected high interest rates for the foreseeable future, there has been a historic sell-off in the bond market in recent months. This week, the yield of 10-year US treasury bond bonds exceeded 5% for the first time since 2007.