US economy can do the 3% growth assumed in Trump's budget, Mohamed El-Erian says

Key Points
  • Three percent economic growth is possible with the right policies, the Allianz chief economic advisor says.
  • Trump's 2018 budget assumes the U.S. economy will reach 3 percent growth by 2021 and beyond.
  • Democrat Larry Summers calls those growth assumptions "ludicrously optimistic."
Krueger and El-Erian disagree on Trump's budget assumptions on growth

The assumption in President Donald Trump's budget for 3 percent economic growth is possible, but Republicans need to get their legislative agenda moving, economist Mohamed El-Erian told CNBC on Wednesday.

"We can average 3 percent. But we need to get going quickly on these pro-growth measures," the Allianz chief economic advisor said on "Squawk Box," sticking up for the White House, which has been under fire from Democrats as being far too optimistic.

El-Erian, also former co-CEO of Pimco, had said during the presidential campaign that he preferred Democrat Hillary Clinton over Trump.

With the president traveling overseas, White House budget director Mick Mulvaney on Tuesday unveiled the 2018 budget, which assumes the U.S. economy will reach 3 percent growth by 2021 and beyond.

The latest critic of Trump's budget is Jason Furman, chairman of the Council of Economic Advisers during Barack Obama's presidency. In a Wall Street Journal op-ed, Furman said Trump's forecast for economic growth is rosier than President Ronald Reagan's first budget in 1981.

Furman wrote, "Long-run growth of 3 percent [is] a full percentage point higher than the Blue Chip consensus of professional forecasters and 1.1 percentage points above the prediction of the nonpartisan Congressional Budget Office."

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The Furman critque, first published Tuesday night, hit hours after Democrat Larry Summers blasted Trump's budget. In a Washington Post op-ed, the Treasury secretary during Bill Clinton's presidency and former Obama economic advisor called the White House's growth assumptions "ludicrously optimistic."

However, El-Erian said he believes "3 percent is achievable with the right policies," such as tax cuts, deregulation and spending on infrastructure.

But getting to 3 percent growth is certainly going to be a steep climb.

Gross domestic product increased at just a 0.7 percent annual rate in the first three months of the year, after a 2.1 percent advance in the fourth quarter of 2016. In the final year of Barack Obama's presidency, the economy grew 1.6 percent for all of 2016, its worst performance since 2011, after expanding 2.6 percent in 2015.

The last year the economy saw more than 3 percent growth was in 2005 during the George W. Bush administration, according to the Commerce Department.