From Project Syndicate (Dec. 24) via MarketWatch (Dec. 30/31):
El-Erian: Expect slower U.S. growth and higher Treasury yields — but America will continue to outperform other major world economies
Political and geopolitical upheaval — and the limited prospects for significant improvements — pose a risk to U.S. economic exceptionalism.
It is something of a tradition every December to take stock of the year that is ending and consider what might lie ahead. This is true on a personal level: in my family, we tend to do this around the dinner table. It is also true more broadly, with the time of year inviting an examination of the intersection of economics, national politics, and global geopolitics.
You would be forgiven if, as a starting point, you expected these three areas to be in alignment. They are deeply interconnected, which suggests self-reinforcing dynamics. But 2024 brought some unusual dispersion in this relationship that actually widened, rather than narrowed, over the course of the year.
Begin with geopolitics. In 2024, Russia secured a greater advantage in the Ukraine war than the consensus forecasts of a year ago anticipated. Similarly, the human suffering and physical destruction resulting from the Israel-Hamas war in Gaza exceeded most observers’ already-grim expectations, and spread to other countries, such as Lebanon. The apparent impunity of the strong, together with the absence of effective means of preventing dire humanitarian crises, has deepened the sense for many that the global order is fundamentally imbalanced, and lacks any enforceable guardrails.
As for domestic politics, upheaval has been the order of the day in many countries. Governments have collapsed in both France and Germany — Europe’s largest economies — leaving the European Union without political leadership. And following Donald Trump’s victory in last month’s presidential election, the United States is preparing for a political transition that is likely to bring a significant increase in the political influence of a new “counter-elite.”
Meanwhile, an “axis of convenience” — comprising China, Iran, North Korea, and Russia — is seeking to challenge the Western-dominated international order. Other recent developments — from the now-impeached South Korean president’s abrupt declaration of martial law (which was quickly reversed) to the collapse of Bashar al-Assad’s regime in Syria — have reinforced the impression that we are living at a time of exceptional geopolitical and political volatility.
The past year also brought some worrisome macroeconomic developments. Europe’s malaise has deepened, as countries grapple with low growth and large budget deficits. And China has failed to respond credibly to the clear and present danger of “Japanification,” with unfavorable demographics, a debt overhang, and a prolonged property-market downturn undermining growth, economic efficiency, and consumer confidence....
....MUCH MORE
