"For the balloon to stay up in the air you really need the private sector to kick in and you need the public sector to start dealing with its debt issues, and we're not seeing that yet."
The stock market spent July on a "sugar high," rising to levels not justified by an economy that is still limping along, Pimco's Mohamed El-Erian told CNBC.
Despite proclamations from some that the recession is over, El-Erian, co-chief executive officer of the largest bond fund manager in the world, said much more needs to happen before the economy registers real growth.
"The July part of the rally is a bit of a sugar high," he said in a live interview. "We need final demand. We need a feeling that deleveraging in the private sector has run its course, that people feel confident now to engage in consumption, investment.
"It's not happening yet on the national level, it's not yet happening at the global level."
El-Erian stuck with predictions from various Pimco executives recently that the economy would be mired in gross domestic product growth of about 1 to 2 percent for the foreseeable future.
"We're not going to go back to where we've come from," he said.
While the banking sector has taken much of the focus during the current recession, El-Erian said it's now about the real economy, particularly wages and unemployment. Those two areas must recover, and that will take a while, he added.
"It's a multi-year process and it's not going to happen overnight," he said of growth in future years. "The economy is floating higher on public debt. There's a limit as to how much you can do that.