Pimco's El-Erian: Sandy Probably Won’t Lead GDP to Shrink

Tuesday, 30 Oct 2012 04:21 PM

 

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Pacific Investment Management Co.’s Mohamed El-Erian said the damage from superstorm Sandy probably won’t trigger a reduction in U.S. gross domestic product.

“The wealth of the country has been impacted, however, there is likely to be catch-up activity,” El-Erian, chief executive officer at Pimco, said during an interview with the Toronto-based BNN television network.

“It’s not clear at the end of the day that GDP, which measures activity, would be negative.”

The storm that hit the Atlantic coast may cause $20 billion of damage, flooding New York’s subway system and cutting power to about 8 million customers from South Carolina to Maine.

El-Erian also said that U.S. lawmakers could reach an agreement that would avoid the full impact of the so-called fiscal cliff, the $607 billion in federal spending cuts and tax increases scheduled to take effect in January unless Congress acts.

“The fiscal cliff is equivalent to a fiscal contraction of 4 percent of GDP, and a very disorderly fiscal contraction,” El-Erian said.

After next week’s election, “there’s a 60 percent to 70 percent probability that that you get a mini- bargain, that you get agreement on fiscal contraction of about 1.5 percent of GDP. If that happens, it’s manageable.”

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