Allianz chief economic adviser Mohamed El-Erian has warned the world economy will face more “improbables” like the "Trump phenomenon", oil price fluctuation and China's struggles in the coming years.
El-Erian, who is chair of President Barack Obama’s Global Development Council, also spoke about Britain’s EU referendum vote being a result of the global rise of non-traditional political parties.
On the impact a Brexit could have on the global economy, El-Erian said the "discussion was made very clear" when Boris Johnson backed the campaign to leave the EU. The day after Johnson announced he was backing a Brexit, the pound went into free fall, dipping to a seven-year low against the dollar.
Speaking at a press briefing to promote his new book, The Only Game in Town, El-Erian suggested the global economy will reach a “T-junction” moment within three years when the current system will end.
El-Erian said this could result in failure, leading to recession, greater inequality and greater political dysfunction. But he also said a good policy response would lead to high inclusive growth, financial stability and a less dysfunctional political system.
He noted that in recent weeks, months and years the world has experienced events that would have been “improbable if not unthinkable” just two years ago.
El-Erian highlighted the struggles of China, oil price fluctuation, negative interest rates, the rise of Donald Trump in the United States and the emergence of other anti-establishment political movements.
El-Erian grouped together the so-called Brexit discussion, Labour's Jeremy Corbyn, US Democrat Bernie Sanders, the AFD in Germany and the National Front in France.
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He said the "emergence of non-traditional, anti-establishment movements" is the result of low growth, inequality and the world's political systems.
He added: “Our mindset is that a non-traditional, anti-establishment movement has to gain power in order to make a difference.
"But as the US discovered starting in 2010 with the Tea Party, that’s not the case. Because the emergence of a non-traditional movement changes the behaviour of established parties.”
He said the EU referendum was the result of Ukip's rise and the "polarisation in the US, the inability to pass a budget" has been caused by the Tea Party in the United States.
El-Erian added that the Brexit vote is “part of a much bigger phenomenon – and that’s not going to go away”.
He declined to pass judgement on how the EU referendum could affect the economy, but added: "The Brexit discussion was made very clear. The major move in Brexit happened when Boris Johnson [backed the campaign to leave the EU] that’s when… as to Brexit, this is a choice that the British electorate needs to make. These are your choices. I can’t come from the outside and tell you what to do."