Economist Mohamed El-Erian said on Wednesday that China's economic transformation policy and Donald Trump's increased growth plans will bear fruit in 2017.
The Chief Economic Advisor at German insurance group Allianz and Chairman of U.S. President Barack Obama's global development council, El-Erian, spoke at the one-day 2016 Arab Strategy Forum which addressed economic forecasts for 2017.
El-Erian said the road for economic growth in China will always be "a bit bumpy," because the world's most populous country is depending less on local production and exports, increasing consumption and building a stronger private sector.
Compared with other emerging markets in transition such as Brazil's or India's, whose economies are struggling, China is managing its transformation policy well, said Egyptian-American economist El-Erian.
China is right to develop its industry sectors from a focus on quantity to quality, he remarked. Regarding the U.S., El-Erian pointed out that New York's Dow Jones stock market index delivered 16 record highs in the last five weeks this year, revealing high expectations linked to the future U.S. government under Donald Trump.
Trump promised an annual 3.5 percent economic growth in addition to hundreds of thousands of new jobs in the U.S. El-Erian added that "Trump will implement a growth policy by launching a corporate tax reform and by spending public money for infrastructure projects in the U.S. as he announced during his election campaign."
As for potential U.S. foreign trade scenarios, El-Erian said Trump "will stress that free trade has to be fair trade as well," without elaborating further.
Trump's new deal will increase higher inflation rates above two percent, estimated El-Erian.
When asked whether the Federal Reserve will increase interest rates, El-Erian replied "expectations are almost 100 percent that the Fed will increase interest rates tonight by 25 basis points (0.25 percent)."
More importantly, he said, is the scenario of whether the U.S. lender of last resort "will signal whether or not there will be multiple interest rate steps in 2017 and how it will adapt to the pro-growth environment of Donald Trump." El-Erian said he personally expects that the Fed will announce further interest rate hikes for the coming year.
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