El-Erian Lifts US Recession Odds to 35% on Oil
Get the Finance newsletter
Daily finance — markets, central banks, M&A, the prints that move money. Free.
- Mohamed El-Erian raised his US recession probability estimate from about 25% to 35%, largely attributing the increase to spillover effects from the US-Iran war
- Brent crude has hovered around $100 a barrel for over a week, threatening to make inflation a structural problem across the US economy and broader supply chains
- El-Erian laid out a two-phase bear case: Phase 1 is higher inflation eating away purchasing power and raising business costs, Phase 2 is lower growth and higher unemployment, which he called the biggest risk facing the economy
- Private credit redemption requests, sagging global demand for government bonds, and elevated stock valuations constitute "fragilities" that could interact with hotter inflation to trigger a "financial accident" that tightens credit
- The US economy lost 92,000 jobs in February, missing estimates of more than 50,000 new jobs, while Q4 GDP was revised down to a 0.7% annualized pace from an initial 1.4% estimate
- Consumer spending has remained relatively flat, with personal consumption rising just 0.4% in January, and hiring has trended lower for the past five years
Why it matters: El-Erian's 10-point recession probability jump comes as Brent crude sits around $100 for a third straight week with no end to the conflict in sight. With Q4 GDP already revised down to 0.7% from 1.4% and February showing 92,000 jobs lost versus expectations of 50,000 added, the US economy is absorbing this oil shock on already-softening ground.
