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Article Summary: Not Just Another Recession – Why the Global Economy May Never Be the Same


Protectionism, high inflation, poorly timed monetary policy and fiscal excess have left the global economy in a sorry state, says economist and former investment chief Mohamed A. El-Erian. He deftly argues that these are not simply transient events but ground-shifting transformations that will affect the future of governments, businesses and individuals. Executives and entrepreneurs will appreciate El-Erian’s no-nonsense call to change how society manages a new geopolitical and socioeconomic landscape.


  • Economic dislocations have roiled the global economy in the 2020s.
  • The world is undergoing unprecedented structural transformations.
  • Policy makers need to adapt their responses to a new economic reality.

Article Summary: Not Just Another Recession - Why the Global Economy May Never Be the Same


Economic dislocations have roiled the global economy in the 2020s.

Geopolitical turmoil, supply-chain reshufflings, soaring inflation and high interest rates have rattled the global economy since its 2021 emergence from the COVID-19 pandemic lockdowns. The US Federal Reserve initially characterized these developments as transitory events in a typical business cycle. Officials stood back to allow isolated price spikes to work themselves out while continuing to stimulate economic demand. But they were wrong. Their responses ignited the worst inflation in a half-century, prompting higher interest rates.

“To say that the last few years have been economically turbulent would be a colossal understatement.”

These exogenous shocks will likely persist, cutting across socioeconomic and geopolitical lines and ensnaring governments, firms and individuals. Attempts to explain these exceptional developments as isolated events ignore the commonalities among them, leading to flawed policies that only exacerbate the problems.

The world is undergoing unprecedented structural transformations.

Three emerging trends are reshaping the global economy: First, the pandemic created supply constraints, while government stimulus heightened the supply–demand imbalance. Second, central banks have been quick to infuse economies with cash at the slightest hint of market volatility, which has enriched the wealthy but offered little benefit to the wider economy. And third, the provision of cheap credit drove many investors to seek yield in less regulated corners of the financial markets, such as private equity and hedge funds. These businesses were unprepared for the sudden rise in interest rates, which sharply affected their funding costs. The result has been a weaker financial system.

“The world isn’t just teetering on the brink of another recession. It is in the midst of a profound economic and financial shift.”

This confluence of changes has complicated firms’ and governments’ planning, as multiple consequences could ensue and are harder to forecast. Such difficulties could compound and lead to costly policy mistakes.

Policy makers need to adapt their responses to a new economic reality.

Households as well as companies and states need to be ready, willing and able to adapt to changing circumstances: They have to be resilient and backed by solid balance sheets, open-minded about their options, and agile in their actions. Businesses and institutions need to draw on a foundation of gender, racial and cultural diversity.

“Instead of facing their normal dilemma – how to reduce inflation without harming economic growth and employment – the Fed now faces a trilemma: how to reduce inflation, protect growth and jobs, and ensure financial stability.”

Infrastructure modernization could address future supply chain disruptions. Better coordination of fiscal and monetary policy would further growth while combating inflation. The supervision and regulation of nonbank financial firms would identify and help mitigate hidden risks. Improved social safety nets would better protect those most susceptible to economic upheaval. Coordination across global financial institutions will help to reduce the risk of unforeseen shocks.

About the Author

Mohamed El-Erian, former CEO and of co-chief investment officer of PIMCO, is president of Queens’ College, Cambridge, and chief economic adviser to Allianz.

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