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El-Erian Says Sandy Probably Won’t Cause U.S. GDP to Shrink

El-Erian Says Sandy Probably Won’t Lead to U.S. GDP Shrinking
Mohamed El-Erian, chief executive officer and co-chief investment officer of Pacific Investment Management Co. (PIMCO). Photographer: Emile Wamsteker/Bloomberg

Oct. 30 (Bloomberg) -- 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 today 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.”

On the global economy, El-Erian told BNN that Greece remains likely to quit Europe’s common currency, and the odds of that happening also range between 60 percent and 70 percent.

He also said that the Bank of Japan’s latest round of monetary stimulus shows the extent of the economic slowdown in Asia, and that central banks are “all in” to deal with it.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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