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Economic Growth Still Weak Due to Housing: Pimco's El-Erian

mohamed el-erian
CNBC.com
mohamed el-erian

First-quarter economic growth will be lower than most people expect because of continued problems in the housing market, Pimco Chief Executive Mohamed El-Erian told CNBC Thursday.

"I think people are going to be surprised that the first quarter, which was initially thought to be a four percent quarter, may end up two percent or below," he said.

El-Erian is not the only analyst seeing weakness ahead. On CNBC Wednesday, John Taylor, chairman of FX Concepts, predicted a recession by the end of the year.

"I don't think we are near a recession but I think we are weakening," El-Erian said. "Watch the housing market. I think the housing market is again key. It won't go away."

He said the Federal Reserve is "doing a good job given what other people are not doing." The Fed's first bond-buying program, called QE-1, "was absolutely necessary. You had to normalize markets. It was about market functioning. I am not sure QE-2 was a good idea and QE-3 would be a very bad idea."

Will there be QE-3? "I think it is unlikely but not impossible that we get QE-3," El-Erian said.

Outside the US, Europe's continuing debt crisis can't be solved by "piling new debt on top of old debt," he said. "Portugal, Ireland and Greece will restructure their debt. The market is pricing that in. We think Spain will avoid this."