Pimco's El-Erian: credit crisis hit consumers hard

NEW YORK (Reuters) - The dislocations in global credit markets are now affecting consumers in the U.S. and Europe, the co-chief of the world's largest bond fund company said on Tuesday.

Mohamed El-Erian, co-chief executive officer of Pacific Investment Management Co, which oversees $750 billion in assets, told Reuters the credit crisis that has engulfed global banks and financial companies "tends to morph rather than simply disappear."

"This one is morphing from a financial sector disruption that hit Wall Street hard to one impacting main street through mounting pressures on consumer confidence on account of both lower growth prospects and higher inflation," El-Erian said in an interview.

"The latest indicators out of both the U.S. and Europe speak to this morphing," he added.

Tuesday, the ZEW economic research institute said its gauge of expectations for Germany, based on a poll of 300 analysts and investors, fell to -41.4, down from -40.7 in April. The consensus forecast was for a -37.5 reading.

El-Erian said the U.S. will stay in a recession, depending on whether initiatives out of Washington D.C., including current deliberations on the foreclosure bill stabilize the housing market.

"Otherwise, the consumer will face excessive pressure in the form of higher prices, lower availability of credit, declining employment, and the negative wealth effect arising from falling house prices and higher foreclosures," he added.

(Reporting by Jennifer Ablan; Editing by James Dalgleish)