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Low growth could turn into recession, Mohamed El-Erian warns

El-Erian: Economy can't stay in 'artificial' state

Governments around the world need to step in with fiscal policies that promote growth because central banks will eventually have to take their feet off the monetary easing pedals, economist Mohamed El-Erian told CNBC on Thursday.

The world economy cannot operate at "low speed" forever without breaking, Allianz's chief economic adviser said on "Squawk Box."

The least likely scenario on how the extraordinary monetary stimulus story ends is the status quo, said El-Erian, former co-CEO of Pimco.

"We could easily see a situation where low growth becomes recession. Artificial stability becomes instability," he said. "[But] if governments step up ... we can transition to a higher growth scenario that validates prices."

"We are in an artificial period that we'll come out of at some stage," he said, advising investors to build up cash.

El-Erian said the longer the Fed keeps interest rates low, the more distortion there will be in economic growth and in financial markets. The Fed is behind the curve and should hike rates, he added.

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