Tuesday, January 10, 2006

The Alchemy of a Global Slowdown

Soros: US recession in 2007

Billionaire investor and philanthropist George Soros has warned about a possible global slowdown in 2007 brought about by a recession in the US economy. Soros is in Singapore and his remarks were made at a talk organized by the Singapore Institute of International Affairs to a sold out audience at the auditorium of the Singapore Exchange during lunch. Soros served up plenty of food for thought by suggesting that the US economy could face a hard landing caused primarily by the bursting of the property bubble.

When the US economy slows down and interest rate hikes stop, the US dollar is likely to depreciate. In a bid to fend off inflationary pressures, he expects the US Fed funds rate to hit 4.75% before the central bank eases off. Soros suggests that the Fed is likely to overdo their rate hikes as they will not stop until the economy shows obvious signs of slowdown, during which it would be too late.

He does not believe that demand from Asia or a recovering Japan could counteract the slowdown caused by the US economy. This is because consumer spending in America has been greater than Asians who are traditionally savers. In response, Asian governments could reduce their export dependency by stimulating domestic demand. Red hot oil prices are also not expected quell soon as demand from a rising China will continue unabated while additional supply may only come on stream in a year or two.

The ominous warning by the chairman of Soros Fund Management came on a day when the DJIA breached the psychological 11,000 barrier for the first time in over four years and as the local press carried a headline offering bullish analyst forecasts for the Straits Times Index.

On Wednesday, Soros is scheduled to speak at another event organized by the Institute of South East Asian Studies. Exclusive notes of his dialogue will be made available.



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