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Daily News Egypt: We are at the end of the economic road

Egypt risks falling into trap of relying too much on central bank, says prominent economist.
25.02.16 | Interesting article at Daily News Egypt

The global economy is at the end of an economic road and is approaching a T-junction, chief economic advisor at Allianz Mohamed El-Erian said Wednesday during a press conference by the US Chamber of Commerce.

The conference addressed how countries can navigate the uncertain global economy with what El-Erian described as a “number of improbable events”. The global economy is either going to become a lot better or a lot worse, he said highlighting the probability of either outcome is equal.

Engaging the private sector will unleash high growth and reduce the risk of financial stability with a possible positive outcome. “Egypt operates in a global neighbourhood. When you have a house in a neighbourhood, you better understand what the neighbourhood is like,” he said. “Anybody operating in the global markets witnessed some events that should have not happened.”

El-Erian was referring to the oil crisis and the negative interest rates the global economy started experiencing recently and that he does not know of a single economic text book that talks about negative interest rates. “For about 30% of government debt, the lender is the one paying the interest. That’s a fact,” he said.

China is suddenly making policy mistakes; when a well-managed economy makes such mistakes, people should start paying attention. The western economy is having a structural shock. The global economy had been in stagnation for many years and when that happens to the west, “bad things” start to happen.

“Banks are turning away deposits; think how silly this is,” he said. “They don’t want your [corporate] deposits because it results in losses.”